The Emergence of Conventions- The Crossroads Game
Game theory can explain the emergence of road rules, as the outcome of two drivers passing each other depends on their spontaneous actions and not on a pre-designed system of rules.
Consider the following example. Suppose that you, Driver 1 (D 1) are approaching an intersection. Another car driving in the opposite direction by Driver 2 (D 2) gets at the intersection at the same time.
Since you both have to cross the intersection, you as D1 have two options: you can either slow down and let the other car pass or you can maintain speed.
Suppose D 1 has an expectation of ? that D 2 will slow down and an expectation of 1 - ? that D 2 will maintain speed, where ? ? (0.1)
Suppose D 2 has an expectation of ? that D 1 will slow down and an expectation of 1 - ? that D 1 will maintain speed, where ? ? (0.1).
Below are the payoffs measured in the time drivers lose at the intersection.
