An equilibrium is the stable-state outcome of a game involving two or more players, in which each player is assumed to know the equilibrium strategies of the other players, and no player has anything to gain by changing only his own strategy unilaterally.
There are several examples of equilibriums in the tech world.
1. Until 1873 when Christopher Scholes came up with the QWERTY Keyboard, there had been no standard pattern to arrangement of letters on a typewriter keyboard. QWERTY maximized the distances between frequently used letters to deliberately slow down the typist, and reduce jamming of keys on manual typewriters. DSK – Dvorak’s Simplified Keyboard, patented in 1963, reduced the distance fingers travelled by 50%, and same material could be typed in 5-10% less time. Yet, it has never been able to replace QWERTY.
2. Stanford economist Brian Aurthur tells a famous story:
“In 1890 there were three ways to power automobiles — steam, gasoline and electricity — and of these one was patently inferior to the other two: gasoline… [A turning point for gasoline was] an 1895 horseless carriage competition sponsored by the Chicago Times-Herald. This was won by a gasoline-powered Duryea — one of only two cars to finish out of six starters — and has been cited as the possible inspiration for R.E. Olds to patent in 1896 a gasoline power source, which he subsequently mass-produced in the “Curved-Dash Olds.” Gasoline thus overcame its slow start. Steam continued viable as an automotive power source until 1914, when there was an outbreak of hoof-and-mouth disease in North America. This led to the withdrawal of horse troughs — which is where steam cars could fill with water. It took the Stanley Brothers about three years to develop a condenser and boiler system that did not need to be filled every thirty or forty miles. But by then it was too late. The steam engine never recovered.”
3. Facebook has acquired equilibrium in inheriting the percentage of new entrants to the Internet. Google Plus is not about to change it unless Facebook falters on a crucial new wave that it stubbornly fails to acknowledge as the next big thing for individual pride in society.
Often, though, each game can have more than one equilibrium. In a fantastic book on game theory, Avinash Dixit illustrates how it’s possible to move to a different equilibrium.
Speeding is illegal but people frequently drive over the speed limit. First, it may actually be safer to drive at the same speed as the flow of traffic. Second, when everyone’s driving over the limit, the chances of your being caught are miniscule.
As more people become law-abiding, the incentives to over-speed fall dramatically. If one driver slows down, he makes it a little bit more attractive for everyone to slow down. Yet, if everyone is speeding, no one wants to be the only one to slow down.
What can lawmakers learn from this? The key is to move a critical mass of drivers to drive within the speed limit. A short burst of extremely strict enforcement and harsh penalties can change the behavior of enough drivers to make full compliance extremely attractive.
The best chances of bringing companies to change their existing equilibrium rest with the leadership because incentives for enforcement, punishment and reward can most likely be implemented top down. Even a relatively autonomous group can shift a company culturally by implementing these incentives within the closed group.
However, while implementing these incentives, the outcome must be measurable in binary terms agreeable to everyone. ‘Either you rock, or you suck’, a friend from a respected e-commerce company once said to me. That usually is the key to deciding which equilibrium you want to set for yourself.
Any guesses as to which online shopping company this could be?