As many of you know, I have a benign hand tremor, which means my hands shake either a lot or a little, but can seldom be relied on to be still. This is why I decided early on I needed an occupation in which small muscle control wasn’t required (surgeon? Forget it!).
So it’s no surprise that when I came across the economics term “Trembling Hands Perfection” I had to follow the link, which led to Bryan Caplan: http://econlog.econlib.org/archives/2010/06/escape_from_the.html
“A trembling hand perfect equilibrium is an equilibrium that takes the possibility of off-the-equilibrium play into account by assuming that the players, through a "slip of the hand" or tremble, may choose unintended strategies, albeit with negligible probability.
“When first described, the concept seems like a mere make-work project for game theorists. But I've gradually noticed that it's a big deal. It explains, for example, why imposing harsh punishments for small infractions isn't nearly as smart as it seems: People sometimes accidentally break the rules. Automatically imposing harsh punishments imposes needless costs on well-meaning people, and gives incentives to avoid valuable actions with above-average accident rates. In a noisy world, forgiveness and second chances are common sense, not sentimental folly.
“The trembling hands concept also explains the value of trying to exceed others' expectations. In the real world, it's not smart to apply the minimum acceptable level of effort, or pay others the smallest amount you can get away with. Accidents happen - and if you cut everything close, those accidents will have needlessly bad consequences.”