How Game Theory can help you with every day’s decisions
Somewhere in an uncharted galaxy, you and your friend are being held prisoners by an enigmatic group of extraterrestrial beings. They promise to let you go if you beat them in one of their games. You sit at a cosmic table with one of the aliens who distributes bags containing both a black and a white rock. When the game starts, every player will select a rock and put it on the table. The winner is whoever picks the rock with a different color. This means, whoever chooses black when the other two choose white or whoever chooses white when the other two choose black. Every time someone wins, they will give you a coin to pile up on your side of the table. You will play the game a million times, and the ultimate winner is the one with more coins at the end. Besides the rules of the game, the only other information you have is that the alien always plays black with a 50% probability. Seconds before the game starts, your partner whispers the strategy you should follow. After a million games, the final score declares both of you as the winners. Was this pure luck? How important was your partner’s strategy?
It is highly improbable that you will end up in a situation like the one described above. However, the game proposed by the aliens can be extrapolated to a more realistic situation. Our lives are filled with multiple interactions in which we decide things either instinctively or deliberately. Many of these decisions depend on someone else’s decision and many others depend on events we cannot control. In any case, our responses are rarely random and more a product of our rational analysis. This means that in each interaction we face, we decide depending on what brings us the bigger benefit. This also means that we can have different strategies according to different interactions. This article is about the strategies we take, the payoffs we get, and Game Theory.
You have likely seen the film A Beautiful Mind about the renowned mathematician John Nash or you have heard about the multiple Nobel prizes awarded to game theorists. Game Theory is an interesting field of Mathematics with many real-life…
