Powerful Game Theory

Blog Post #3

During this week’s lectures and discussion section, we encountered one of my favorite theories — Game Theory. As an economics major, I learned about prisoner’s dilemma and other forms of games in my microeconomics classes, and I was really excited to see game theory in application for political science studies. For the sake of our discussion in class, we mentioned the classic prisoner’s dilemma and the assurance game, and talked about their expected outcomes based on the payoff matrix. Admittedly, there are times in life when we do not end up getting the theoretically expected outcome, because our rationality can be easily influenced by the complicated real life context of the game, either what others say or abnormal preferences of an individual. However, it is beneficial for us to learn from the game theory, using it as a tool to understand why people make certain decisions, and try to make better decisions in the future.

First of all, let me show you something interesting:

This video above reflects a similar situation to prisoner’s dilemma in the sense that it is socially beneficial but not rationally expected for both of the participants in this Golden Ball game to split up the money. In the show, the girl ends up getting all the money by stealing while the guy gets nothing by choosing to split. Although the game set up is different from the classic prisoner’s dilemma and communication is allowed in this case, a payoff matrix similar to the one for prisoner’s dilemma actually helps us to understand what is going on in both participants’ heads.

Here is an extensive analysis of this particular game setup, but I will leave it for those of you who are interested to read. My point is, game theory is very helpful when we try to understand people’s choices and final outcomes.

In class, we compared the prisoner’s dilemma and the assurance game with different opinions on state of nature, which again, shows that game theory is a powerful tool for us to understand the world. Basically, we would face a prisoner’s dilemma according to the Fool’s understanding of the state of nature, whereas Hobbes would claim that assurance game is more similar to the world we live in. I think the representations using these two types of games are very clever and concise, which successfully explain the corresponding mechanisms of their different accounts of state of nature. It takes Hobbes several chapters to describe why and how we end up in a certain state of nature, whereas a simple payoff matrix of assurance game embeds almost all the intuition and rationale he uses to support his argument.

Game theory is called “game” theory for a reason. There is a lot of evidence that we use various strategies of different models in sports. A classic and popular game that researchers love to study is penalty kick in soccer games. Also, my roommate is actually doing a research to verify that tennis players adopt the minimax strategy, minimizing the loss during the game, in order to win.

Additional to only better understanding the world, we can actually make better choices using game theory strategies. Antitrust laws and policies are the most famous applications of game theory, but I will not go into much detail here. Instead, I would like you to know that game theory can easily improve our personal lives. In fact, perhaps you are already adopting some game theory strategies without knowing that. Game theory will come in handy when you are dealing with important elements of your life, such as relationship and marriage. Here is a TED talk on this topic, and this talk also discusses application of game theory to other crucial issues including kidney donation chains and government gridlock. Another article also talks about how can game theory save a marriage.

Powerful as game theory is, there are still times when game theory can not explain what is going on at all, because real life is always far more complicated than a clear and simple model. There are more than just payoffs and utilities. This article explores circumstances when game theory does not seem to work. 

Last but not least, for those of you who are also intrigued by game theory as I do, you might consider taking these economics classes: ECON 101, ECON 401, ECON 409. Among these three courses, ECON 409 is entirely dedicated to game theory, but it is one of the most challenging undergraduate economics courses. So you might want to think twice before taking it. There should be other math classes discussing similar topics too, and I suggest talking to the math department advisors if you want to get more information.

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