2. Definition
“Mathematical theory concerned with
determining the optimal strategy and
outcome of situations with
conflict/competition, such as in military
operations, business activities, or games of
strategy”
3. What is Game Theory
What economists define as the ‘game theory’ is
actually the psychological assessment of
behavioral patterns.
The strategy of chess is similar to military
strategy, anticipating an opponent’s optimal
strategy and countering that strategy.
The game theory takes that philosophy and
supports it with mathematical methods.
4. Pros & Cons
“Game Theory” comes with the benefit of
probability and reasonable conclusion, but
there will always be ‘unforeseen events’ and
the risk involved with the human condition.
“Risk” involves the potential for loss from an
unknown event or incalculable potential.
Game Theory also precludes the potential for
simply not playing.
5. Benefits
Strategy enables the possibility for reward or
gain, with less risk from opposition or of
unforeseen consequences through design and
anticipation of events.
Game Theory takes into effect causality and
potential consequences of both mutual
gain, mutual loss, and victory over an
opponent.
6. Balance
For every risk there should be an equivalent or
greater reward, otherwise the risk is fruitless
and often not worth the potential
consequence.
Game Theory seeks to both understand and
minimize risk expectancy, increasing the
potential gain by reducing the potential
risk, thus leaving situations more favorable.
8. Types
Zero-Sum – Equivalent Exchange
Non-Zero Sum – Adding and Removing
Cooperative – Multiple Forces Working Toward
Common Purpose
Symmetric/Assymetric – Equal Causality
Simultaneous – Instant Response/Action
Sequential – Once Action Inspires Another
9. Zero Sum
This follows the law of equivalent
exchange, whereby to
gain, another must lose, and all
sums must add to zero.
The concept is close to holding
pieces of a pie. For one to hold
one piece, another may hold the
rest of the pie, but they will always
be absent that piece, until it is
won.
10. Cooperative
Here, certain players share a vested interest in
the success of the other, including shared
reward and/or limit of risk/penalty.
Cooperative games require the use of
communication and shared strategy/resources
and analysis of details, whereas non-
cooperative games may not require as much
detail in execution or events.
11. Nash Equilibrium
This is a non-cooperative, multiplayer solution
concept, in which players are thought to be
aware of equilibrium strategies of other
players, and no player has any gain in
changing their strategy unilaterally.
The basic understanding is that one player
makes the best decision they can, taking into
account that other players will be doing the
same, toward their own interests.
12. Prisoner Dilemma
This is a fun concept, whereby, through
distrust, players will move toward mutual
disadvantage, versus working together toward
advantage, even if working together stands in
their best interests.
This falls under the self-interest and competition
theories of psychology, whereby self-interest
may lead to irrational decision making that
can be rationalized.
13. Prisoner Dilemma (cont’d)
The most known explanation of this is where
two prisoners are held in separate cells. Each
may confess or deny the crime. If one
confesses, and the other does not, the
confessing party goes free. If the other
confesses, and the original party does not
confess, the original party gets 10 years. If
both do not confess, they both get 1 year, and
if both confess, they both get 5 years.
14. Prisoner Dilemma (cont’d)
In the face of said decision, it
is likely that both will
confess, because neither
can trust the other to
forego a free ride, though
through both not
confessing, both parties
minimize their damages.
15. Critics’ Review
Many criticize the Game Theory in that it cannot
account for all potential variables or actions.
There is also the ‘irrationality’ concept relative
to the human condition that can cause
persons to engage differently than would
apparently seem wise or prudent.
Unforeseen variables also come to play that can
throw metaphorical wrenches into the Game
Theory.
16. Conclusion/Thoughts
While many believe the Game Theory to be
irrelevant, due to the many variables that may
arise, such as irrationality or those
unaccounted for, I believe it is viable.
Through strategy and game-plan, one can outwit
their enemies, and through adaptive strategy
(meaning strategy and adapting to new
variables), one can reasonably hold a better
position than those that do not.
17. References
GAMETHEORY.net. (2013). Nash Equilibrium. Retrieved from gametheory.net:
http://www.gametheory.net/Dictionary/NashEquilibrium.html
Jackson, M. L.-B. (2013). Game Theory. Retrieved from courseera.org:
https://www.coursera.org/course/gametheory
Jackson, M., Leyton-Brown, K., & Shoham, Y. (2013). Game Theory Online.
Retrieved from game-theory-class.org: http://game-theory-class.org/
Levine, D. (2013). What is Game Theory? Retrieved from ucla.edu:
http://levine.sscnet.ucla.edu/general/whatis.htm
Scheve, T. (2013). How Game Theory Works. Retrieved from
science.howstuffworks.com: http://science.howstuffworks.com/game-
theory.htm
Social Networking Labs. (2013). What Is the Prisoner’s Dilemma? What is
Game of Strategy? Retrieved from prisonerdilema.com:
http://prisonerdilema.com/
Yale University. (2013). ECON 159: GAME THEORY. Retrieved from
oyc.yale.edu: http://oyc.yale.edu/economics/econ-159
