Price of Anarchy

Definition ∞ The Price of Anarchy is a concept from game theory that quantifies the efficiency loss in a system due to selfish behavior by individual participants compared to a socially optimal outcome where participants cooperate. In decentralized systems, it measures how much worse the system’s performance is when nodes act in their own self-interest versus when they act for the collective good. A lower Price of Anarchy indicates a more robust and efficient decentralized protocol. It assesses the degradation of system utility.
Context ∞ In crypto news, the Price of Anarchy is often referenced in academic research and discussions about the economic design and incentive mechanisms of blockchain protocols. It helps evaluate the resilience and efficiency of consensus algorithms and decentralized applications against rational, self-interested actors. Understanding this metric is crucial for designing cryptoeconomic systems that maintain stability and performance even under adversarial conditions, thereby ensuring the long-term viability of digital assets.