When the US Congress put forward a bill in 1969 suggesting that cigarette advertisements be banned from television, people expected American tobacco companies to be furious. After all, this was an industry that had spent over $300 million promoting their products the previous year… So, what did they choose to do? Pretty much nothing.
Far from hurting tobacco companies’ profits, the ban actually worked in the companies’ favor. For years the firms had been trapped in an absurd game. Television advertising had little effect on whether people smoked, which in theory made it a waste of money. If the firms had all got together and stopped their promotions, profits would almost certainly have increased. However, ads did have an impact on which brand people smoked. So, if all the firms stopped their publicity, and one of them started advertising again, that company would steal customers from all the others.
Whatever their competitors did, it was always best for a firm to advertise. By doing so, it would either take market share from companies that didn’t promote their products or avoid losing customers to firms that did. Although everyone would save money by cooperating, each individual firm would always benefit by advertising, which meant all the companies inevitably ended up in the same position, putting out advertisements to hinder the other firms. Economists refer to such a situation – where each person is making the best decision possible given the choices made by others – as a “Nash equilibrium.”
… Congress finally banned tobacco ads from television in January 1971. One year later, the total spent on cigarette advertising had fallen by over 25 percent. Yet tobacco revenues held steady. Thanks to the government, the equilibrium had been broken.
That is from The Perfect Bet: How Science and Math are Taking the Luck Out of Gambling by Adam Kucharski, a very readable book full of insights. It’s mostly about cases of physicists and mathematicians who have “beaten” (more often found slight edges) in roulette, poker, horse race betting, and sports gambling.
Kucharski is Sir Henry Dale Fellow in the Department of Infectious Disease Epidemiology at the London School of Hygiene & Tropical Medicine. Now there’s a job!