What is Game Theory?
According to our online dictionary,
game theory is the branch of mathematics concerned with the analysis
of strategies for dealing with competitive situations where the
outcome of a participant's choice of action depends critically on the
actions of other participants. Game theory has been applied to
contexts in war, business, and biology.
David
K. Levine, Department
of Economics, UCLA ,
refers to game theory in a little more of an expanded way:
What economists call game
theory psychologists call the theory of social situations, which is
an accurate description of what game theory is about. Although game
theory is relevant to parlor games such as poker or bridge, most
research in game theory focuses on how groups of people interact.
There are two main branches of
game theory:
- cooperative
- noncooperative
Noncooperative game theory
deals largely with how intelligent individuals interact with one
another in an effort to achieve their own goals.
Note: So, this already confuses me because I do not know what to do
with non intelligent individuals.
In addition to game theory,
economic theory has three other main branches: decision
theory, general
equilibrium theory and mechanism
design theory.
All are closely connected to
game theory.
He then continues with a detailed description of the 3 types,
indicating that they are closely connected to game theory...
which
means what exactly?
- If something is closely connected does it mean that it is connected or not connect?
- And, if something is closely connected does that also mean it is similar or could be similar?
- I have never understood why Educators have to make this stuff so complicated.
Businessmen (and business women) like Game Theory because it allows
them to predict outcomes based upon a series of prearranged stimuli.
For example, if this is done, then employee(s) will to do this or if
that is done, then employees will do that.
The Prisoners Dilemma is one such game that is used often. Pretend
that you have detained 2 people that you think committed a crime but
you have no real evidence. You interrogate each individual in a
separate room by 2 different people but both detainees are told the
same scenario.
Each of these detainees can say nothing and something will be up
against them and they will go to jail for 3-5 years, maybe more. Or,
the first one to confess and turn on the other one, will go free and
the other person will go to jail for 10 years. If however, the one
who confesses will not turn on their partner, then they will go to
jail 15-20 years.
The purpose of this game is to get someone to divulge their dominate
strategy of self-preservation which psychologists believe is
inherently present in all of us.
This type of game theory revolves around a merchant who own a store
downtown with a rather large front bay window. If that window were
to be broken by vandals, the game suggests that this would be
positive because new glass would need to be purchased and installed
and a local crafts person would have to be hired to do the
installation earning additional money that had not been budgeted so
more more money would have the opportunity of being spend inside this
local economy.
When I was teaching Business or Economics, I would suggest that they
all leave class and drive their cars downtown and break all the
storefront glass of all the merchants and when they got caught not to
mention my name but to tell the officials that they were stimulating
the economy.
Of course, I told them that I was joking and no one actually did
this.... At least, I don't think they did... lol
Most, if not all of business is played out as if one is playing a
game and sometimes business people get carried away with the game and
that is somewhat understandable because it is rather addictive as all
games are or can be; but, the idea behind game theory is that we
control the game and the game does not control us.
Game theory came of age in 1994, when three pioneers in the
field were awarded the Nobel Prize. It all began in 1944, when
mathematics genius John von Neumann and economist Oskar Morgenstern
published their book Theory of Games and Economic
Behavior. Immediately heralded as one of the
greatest scientific achievements of the century, their work provided
a systematic way to understand the behavior of players in situations
where their fortunes are interdependent.
Von Neumann and Morgenstern
distinguished two types of games.
In the first type, rule-based
games, players interact according to specified “rules of
engagement.” These rules might come from contracts, loan covenants,
or trade agreements, for example.
In the second type,
freewheeling games, players interact without any external
constraints. For example, buyers and sellers may create value by
transacting in an unstructured fashion.
Business is a complex mix of
both types of games.
I have always believed that those who know how the play the game of
Chess well will also be successful in business at all levels. In the
game of Chess, you are playing against only one opponent with each of
you having several pawns with limited moves, 2 castles with specific
moves, 2 bishops with specific moves, 2 horses with specific moves, 1
Queen, and 1 King with the object of the game to use your various
chess pieces in such a way as to put your opponents King in a
position where it have no move to make or CHECKMATE.
Excellent Chess players can see and/or speculate in their heads, 10
moves ahead and all the various moves that could or may be taken by
one's opponent including all the counter moves that may or could be
taken by you.
This same mental focus, I have been told is present in golf but I do
not see it at all... as for me, golf does not even come close with
all the stuff that Chess requires you to keep floating around in your
consciousness.
Chess is not just a game of strategies but it is a game where chess
pieces are intentionally sacrificed in order to gain the upper hand
or a strategic advantage on one's opponent. However, when that is
translated into the “real world,” then that means that certain
businesspeople are willing to sacrifice certain employees in order to
close or conclude a pending deal.
And, I am sure that is where the phrase, It's nothing personal,
it's just business, came into existence.
It takes a specific mindset to conduct business at the highest level,
and those who are strongly considered for those positions are the
ones who are:
- the sniper who takes the shot
- the bombardier who drops the bombs
- the basketball star that takes the shot with 1 second left
- the winners of chess matches
- the mountain climbers who reach the top
- the gunslinger who draws his firearm the fastest
This is exactly why so many people who call themselves leaders are
nothing more that fairly competent managers... who, never wanted to
excel at playing chess because it was too mentally focused and
emotionally draining.
How well do you play the game?
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