Question

3. Political scientists usually conclude that voters dislike negative campaign ads, but we can use game theory to offer an explanation for why they continue to be used. While negative ads are (nauseatingly) commonplace in electoral competition, they are far less frequent in business competition; i.e., it is rare to see company A directly attacking the quality or character of competing company B to the extent that political candidate X attacks political candidate Y. (We might see a company talk about the insufficiencies of “the leading brand,” but the negativity is very tame compared to what happens during campaign season.) How might game theory also offer an explanation for this behavior?

Answer 1

Solution:-

In an electoral campaign, When two candidates, suppose X and Y, are running against each other, each can choose if he wants to utilize attack ads. But even without attacking each other, both X and Y have an equal chance of winning.The payoffs for both candidates will be,
(1) X's pay off will be highest if he uses attack ads but Y doesn't. In this case, X can inflict a heavy damage while keeping his own on the track. In this case, X has the highest possibility of winning.

(2) The second best case for X will be, if neither candidate uses attack ads, as his own campaign would be unaffected and he would retain a 50/50 chance of winning.

(3) Next, best case for X will be. if both the candidates use attack ads because both campaigns would be hurt. But X will still have a chance of winning an election, though it will affect their public image and future cases.

(4) The worst scenario for X will be, he opts not to use attack ads but Y does. Here X's chance of winning would decrease.

Now if we analyze the outcomes, it is clearly seen that the most favorable option for both parties is not harmed each other. In this case, neither of their public images gets affected nor their chance of winning. Both of them will have a 50/50 chance of winning. But if one of them chooses to run attacks against another, the other one will eventually start attacking to improve his own position. When both politicians are running attack ads, X or Y would have nothing to gain and a lot to lose.This demonstrates that even though both politicians would prefer attacks airing from neither side to airing from both, attacks from both candidates is the only stable possibility because it is a Nash equilibrium.

But in case of Business Competition, Company A & B, will better off, if they both decide not to attack each other. As, if they prevent themselves from attacking each other, there is a positive chance to gain profit equally for both of the companies. But if they run attacks, consumers will eventually stop spending on them, which will occur heavy loss for both of them. Here, not attacking each other is the only stable policy because it is a Nash equilibrium.