The term game theory was first coined in 1950s by John von Neumann. He defined the concept of game theory as the study of strategic decision making. Game theory is a mathematical model of conflict resolution among intelligent rational players. It studies how individual choices and their consequences affect the behavior of others. In economics, game theory is often used to explain situations where individuals make decisions based on their own self-interest, while at the same time affecting the interests of others. In biology, game theory is applied to describe interactions between organisms (e.g., predator prey).
In recent years, game theory has been widely used in many fields including economics, politics, sociology, psychology, computer science, engineering, management, marketing, law, etc.
Why does this matter? Well, if we know what motivates players, we can design games that take advantage of those motivations. And then, once we understand human behavior, we can use our knowledge of game theory to build systems that encourage good behavior while discouraging bad behavior.
How does this work? If you've ever played poker (or any card game), you've probably already seen some examples of game theory at work. Poker players have developed strategies over time that exploit weaknesses in opponents' play. For example, it's much easier to bluff someone who thinks you're bluffing than to bluff someone who knows you aren't bluffing.
Who uses game theory? Anyone who wants to get ahead—and stay ahead—in business and relationships. Entrepreneurs, investors, politicians, parents, teachers, even religious leaders and military generals all use game theory to plan strategy and make decisions.
When did game theory start being applied to real world problems? While mathematicians were developing game theory, economists were using it to explain economic behaviors. By the 1980s, psychologists began applying game theory to understand human decision making. Today, many businesses use game theory to improve efficiency and effectiveness.
Do games really teach you anything? Yes, they do! Even though we usually only think of them as entertaining diversions, video games are powerful teaching tools. Whether it's getting kids to exercise, helping students learn math concepts, motivating employees to excel, or encouraging people to live healthier lifestyles, video games can help us achieve goals we didn't even realize we wanted.
So, why do I need to know this? Game theory is part of the core curriculum in many universities around the world. As a result, game theory is becoming increasingly relevant in our everyday lives. That means that you should know what game theory is, how it works, and why you might want to use it to solve real world problems.
Different types of game theory:
1. Prisoner's Dilemma
Prisoner's dilemma occurs when two individuals act independently without communicating about their goals. Each individual makes decisions based on what they believe is best for them and not necessarily what would benefit the whole group. In a prisoner's dilemma, both parties make selfish choices and neither will cooperate with each other.
2. Tit-for-Tat
Tit-for-tat refers to a game where players respond to cooperative and non-cooperative opponents with similar strategies. Both players always play according to their own strategy, regardless of whether the opponent chooses to cooperate or not.
3. Stag Hunt
In stag hunt games, players do not need to communicate with each other; however, if they were to communicate, then they could determine who to trust and who to betray. This type of game is commonly played in the wild.
4. Chicken Game
Chicken game is a game that involves three players. Each player has two options to choose from: A and B. If player A chooses option A and player B chooses B, B wins and A loses $100. If player A chooses Option A and Player B chooses A, A wins and B loses $100. If A chooses Option B and B chooses B, B loses $100 and A wins $100. If A picks B and B picks A, A loses $100 and B loses $100 and both players win nothing.
5. Coordination Game
A coordination game happens when everyone chooses either A or B at the same time. Everyone receives something if they choose the same thing. However, if noone chooses A or B, everyone loses $50.
6. Iterated Prisoner's Dilemmas
An iterated prisoner's dilemma occurs when the same game is repeated over again. In the first iteration, both prisoners receive five years in prison unless they cooperate with each other. In the second iteration, only one prisoner gets five years while the other prisoner does not. In the third iteration, both prisoners get ten years in prison until they decide to cooperate with each other. By repeating the game many times, both prisoners have less incentive to cooperate since they know that if they cooperate with each other once, they'll both go free.