Theory 010: Game Theory

I was surprised when Game Theory’s commonly used in terms of mathematics and economics. When I still had no idea behind the context of Game Theory, I thought that the theory is game related. Like, video games type.

Game theory studies about human conflict and cooperation within a competitive situation. Game theory is the science of strategy, or the optimal decision-making of independent and competing actors in a strategic setting. The proponents of game theory were John von Neumann and John Nash. Both of them are mathematicians. Oskar Morgenstern, on the other hand, was an economist.

A language and formal structure of analysis for making decisions in competitive settings is created by game theory. This makes the term “game” misleading. Despite the fact that game theory is applicable to recreational games, the concept of “game” means any interactive situation in which independent players share rules and consequences.

 In order to formally apply game theory, one must have knowledge of the following: the identity of independent actors, their preferences, what they know, which strategic acts they are allowed to make, and how each decision influences the outcome of the game. Depending on the model, various other requirements or assumptions may be necessary. Finally, each independent actor is assumed to be rational.

Game theory can be applied in various fields, such as psychology, biology, war, politics, economics and business. Game theory has turned its attention away from steady-state satiability and made its way toward market process. Every ‘player’ or decision-maker must foresee the reaction of those who they affected by their decision. In terms of business, this means economic agents must anticipate the reactions of their rivals, co-employees, customers and investors. Despite its many advances, game theory is still a young and developing science.

There are different types of ‘games’: a) cooperative vs. non-cooperative, b) symmetric vs. asymmetric, c) zero-sum vs. non-zero-sum, d) simultaneous vs. sequential, e) perfect vs. imperfect. For A, a game is cooperative when the ‘players’ can be in teams, while it is non-cooperative when the ‘players’ have to act on their own. For B, if the identities of the players can be changed without changing the payoff to the strategies, then a game is symmetric. Asymmetric games are games where there are not identical strategy sets for both players. For C, Zero-sum games are games in which choices by players can neither increase nor decrease the available resources. In zero-sum games, a player benefits only at the equal expense of others. For D, a game is sequential when the players have knowledge about the other players’ earlier actions. In simultaneous, it is a strategic game where the players have no idea about the actions that their competitors will take. Lastly, for E, a game is perfect when the players know everything they need to know about the game. Meanwhile, a game is imperfect when the players have no complete access to the game’s rules and mechanisms.

Combinations of the kinds of games can be seen in the movie Circle. The game is imperfect since they have no idea on why they are playing the game to begin with. At one point, the game became cooperative since they agreed to vote the person at their right in order to have tie votes. The game in circle is also non-zero sum since the others get to live longer at the expense of whoever’s voted by the majority to be killed.

If one takes a closer look, we can say that life is a game. That’s why this theory is applicable in our lives. Despite the fact that life is actually a game, competition doesn’t actually have to exist all the time. Maybe most of the time, yeah, but not all the time.