How Does Selfishness Affect Well-Being?

Is selfishness always a bad thing, in the sense that people can only be better off when everyone is concerned with the well-being of others as well as with his own, or are there situations in which altruism can actually make things worse for all people involved? This paper tackles this question in the context of two-person symmetric games, which are modified by making the payoff of each player a weighted average of that player’s true payoff and the true payoff of the other player. The exogenously given degree of selfishness, which determines the weight a player attaches to his own payoff, is the same for both players. It is shown that it is not impossible for the equilibrium payoffs in the modified game to be lower than every equilibrium payoff in the original game. For example, in a symmetric Cournot duopoly competition, if the two firms move only halfway towards monopoly then their profits may be lower than those of both a monopolist and a duopolist. However, this can happen only if the symmetric equilibria in the original game are, in the appropriate sense, unstable. Thus, the effect of selfishness on the symmetric equilibrium payoffs in a symmetric two-person game depends crucially on the stability of these equilibria.