What is Public goods game?
The public goods game is an experimental paradigm for studying cooperation in groups. Each player decides how much to contribute to a shared pool; contributions are multiplied and divided equally, creating a tension between individual free-riding and collective benefit.
How it works
The Nash equilibrium is to contribute nothing (free-ride on others’ contributions), but experimental results consistently show that people contribute about 40-60% of their endowment initially. However, contributions decline toward zero over repeated rounds as cooperators become frustrated with free-riders and reduce their own contributions. Punishment mechanisms (allowing players to pay to penalize free-riders) sustain cooperation, as does communication, reputation, and group identity.
Applied example
In a four-person public goods game where each dollar contributed becomes $2 shared equally, contributing $10 earns the group $20 but returns only $5 to the contributor. Keeping $10 returns $10 plus a share of others’ contributions. Despite the incentive to free-ride, most people contribute substantially in the first round.
Why it matters
The public goods game reveals the fundamental tension between individual and collective rationality, explaining why public goods (clean air, herd immunity, open-source software) are chronically under-provided without institutions to sustain cooperation.
