A Nash equilibrium is a not ideal place to be stuck. It is a situation where you and I are both better off if we coordinate to do something together, but if only one of us follows through, the thing doesn’t get done. It is rational for neither one of us acting unilaterally, worrying that the other won’t act. You can see Nash equilibria like this all over the place.
I recently wrote about them in the context of reducing consumption to address climate change. Assume we all need to take the bus and stop driving cars to prevent climate change, if you take the bus and I don’t, you lost twice because climate change still happened and you were in a bus rather than the comfort and privacy of your own vehicle.
Think about it on the global scale: if the United States internally imposes tough restrictions on greenhouse gases but no other country does, the United States may well-being and yet still fail to prevent climate change; a tough sell.
Another way of saying this is that in a Nash equilibrium, it is individually rational to do something that collectively is irrational. Collectively we need to reverse climate change. Individually, getting unilateral action is a challenge.
It isn’t that participants stuck in a Nash equilibrium don’t know there is a better way—they just know it’s irrational to leave the status quo without others coming with them. So in many cases we end up with false starts and stalled negotiations and inaction in the face of major problems like climate change. One way to break out of a Nash equilibrium is to make it individually rational for unilateral action to take place.
I believe the climate Nash equilibrium can be broken through my company’s business model. Nori is the world’s first carbon removal marketplace, making it easy for people to get paid for pulling carbon dioxide out of the atmosphere. Our first methodology is for farmers practicing regenerative agriculture. If there were a good financial incentive to practice regenerative agriculture and carbon removal, wouldn’t this motivate a lot more of it and get us out of our climate slump?
Yes, making it easy and profitable to remove carbon dioxide might help increase supply, but there is the ever-lurking free-rider problem of demand in climate discussions. What about the people who don’t pay for carbon removal but benefit from reversing climate change? They may just wait in the wings for someone else to pick up the carbon removal bill. This is a fair objection: there are already market mechanisms for climate change. Isn’t Nori subject to the same dynamic?
Yes, though I believe that with a credible carbon removal platform, demand for these services may be high enough to start drawing down carbon faster than we emit in a way that hasn’t been true for legacy carbon markets. Complexity, expensive barriers to the entry, and the design of existing carbon assets greatly limit the scaling potential of those markets as detailed here. Nori’s focus on simplicity and scalability could see the creation of a vibrant new carbon removal industry.
If people could make money, and in some cases, become rich through reversing climate change, it may again become individually rational to act on both the demand and supply sides of climate change that wasn’t true before Nori, and we could leave this dismal Nash equilibrium behind.