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Blog about Game Theory

What Actually Is Game Theory? - The Infographics Show
Frequently Asked Questions

What is an example of a game theory analysis?

A straightforward example is a two-party political system where the parties need to position themselves along a spectrum from liberal to conservative. Voters will select the party that aligns most closely with their own views. Initially, it can be demonstrated that the parties will try to minimize the distance between themselves. Ultimately, they are likely to position themselves at the point where the median voter is located, as illustrated by the median voter theorem.

Who invented Game Theory?

Game theory, the mathematical study of strategic decision-making, was primarily developed by John von Neumann and Oskar Morgenstern. They are credited with formalizing game theory in their 1944 book, Theory of Games and Economic Behavior.

What can Game Theory be used for?

Game theory has a wide range of applications across many fields because it provides a framework for understanding and analyzing strategic interactions. Game theory can be applied in economics and business, politics and international relations, computer science and artificial intelligence, military and defense, and environmental management. Essentially, it can be used in almost any field where decisions involve multiple individuals or parties in the decision-making process.

What does behavioural economics have to do with game theory?

When applying game theory, you can identify the best theoretical outcomes. However, applying game theory to every aspect of life isn't always straightforward, and analyzing every detail can be too resource-intensive. This is where behavioral economics comes into play; it helps us understand where we often deviate from optimal decision-making. Additionally, behavioral economics offers insights into how our partners may also stray from optimal behavior, enriching our analysis. By recognizing these deviations, we can better identify the contexts in which game theory is most applicable, enabling us to focus our efforts more effectively in various situations.

Why should I be interested in Game Theory?

Every day, you engage in countless decision-making scenarios, often without even realizing it. Understanding the decision situations you encounter daily and how your choices impact your well-being or payoff can enhance both your personal and professional life. This knowledge can help you create the right incentives to achieve your goals and enable you to analyze how others might respond to your actions, providing insights into your optimal strategy.

Is it hard to get into Game Theory?

The fundamentals of game theory are relatively easy to grasp. While it is a branch of mathematics, it primarily relies on basic concepts like derivatives, which are typically taught in high school.

Blog Articles
Books
Book cover of Game Theory for Applied Economists.

Game Theory for Applied Economists

Robert Gibbons

Provides a concise introduction to the fundamental concepts of game theory, covering topics from normal form games to extensive form games with both perfect and imperfect information.

Book cover of The Art of Thinking Clearly.

The Art of Thinking Clearly

Rolf Dobelli

Explores 99 heuristic biases—common situations where we tend to deviate from rational behavior. The book focuses on behavioral economics rather than game theory.

Book cover of Thinking Fast and Slow.

Thinking Fast and Slow

Daniel Kahneman

Presents two modes of thinking: the fast system, which relies on heuristics and leads to suboptimal decisions, and the slow system, which is more accurate but requires more effort.

Videos
Would You Take This Bet? - Veritasium
The Just One More Paradox - Marcin Anforowicz
Daniel Kahneman Fathoms The Human Mind - Forbes
Background
Two person being interrogated by police. Shows the prisoners dilemma.

What I like about
Game Theory

I find it intriguing that behavior can be categorized and predicted based on its rationality. Coming from a computer science background, I appreciated the clarity in problem-solving—there was little room for debate, unlike what I often heard from students in other fields who complained about unfair grades. In computer science, it was straightforward: either a solution existed or it didn’t. However, when it comes to behavior, determining the right course of action is often less clear. Game theory provides a framework for identifying rational and optimal solutions under strict axioms, clearly defining what is definitely irrational or suboptimal.

A person being manipulated by anchoring effects.

What I like about
Behavioural Economics

When applying game theory, you can identify the best theoretical outcomes. However, it's not always straightforward to apply game theory to every aspect of life, and thoroughly analyzing every detail can often be too resource-intensive. That's where behavioral economics comes in; it helps us pinpoint where we typically deviate from optimal decision-making. Moreover, behavioral economics also sheds light on how our partners may stray from optimal behavior, providing valuable insights for our analysis. By understanding these deviations, we can better determine the contexts in which game theory should be applied, allowing us to focus our energy more effectively in life.

Contact

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Person playing chess on the ground. Person reading a book in the library.