The Complete Idiot's Guide to Game Theory

567 Pages·2011·2.98 MB·English

by  Ph.D.

Table of Contents

Title Page
Dedication
Copyright Page
Introduction
Acknowledgements

Part 1 - The Basics

Chapter 1 - What Exactly Is Game Theory?
Chapter 2 - Playing the Percentages
Chapter 3 - Zero Sum Games
Chapter 4 - Nonzero Sum Games
Chapter 5 - More Nonzero Sum Games

Part 2 - How Information Affects Games

Chapter 6 - Ignorance Is Not Bliss
Chapter 7 - Signaling and Imperfect Info
Chapter 8 - Nuanced Messages

Part 3 - Getting Ahead by Working Together

Chapter 9 - An Overview of Cooperation
Chapter 10 - Bargaining Games
Chapter 11 - Fair Division Games
Chapter 12 - Cooperative Games
Chapter 13 - Group Decision Games

Part 4 - Individual Values vs. the Group
Chapter 14 - Individual Gain vs. Group Benefit
Chapter 15 - Auctions and Eliciting Values
Chapter 16 - Designing Games for Group Benefit

Part 5 - Behavior in Games

Chapter 17 - Biology and Games
Chapter 18 - Aligning Theory with Behavior
Chapter 19 - Behavioral Decision Theory
Chapter 20 - Strategic Behavior in the Lab
Chapter 21 - More Quirky Behavior
Chapter 22 - Repeated Games and Tendencies

Appendix A - Glossary
Appendix B - Sources, Resources, and Further Reading
Index

To Bryony, Jordan, and Chloe.
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Introduction

In our increasingly hectic world, we are required, even forced, to make decisions
all the time. This can be stressful, and we often worry whether we made the right
choice.
That’s where a little knowledge of game theory comes in handy. Game theory is
all about strategizing. It’s about making the best decisions you can—how to go
about choosing what to do in the face of uncertain outcomes and scheming
adversaries.
How do you make decisions? Do you make snap judgments? Do you
painstakingly note down all the pros and cons and weigh them up? Do your
decisions affect others? (Do you care?) And one more question: do you
anticipate the decisions that others are making and how they impact you? That
last question—about anticipating others’ decisions—is what game theory is
really about.
Game theory took off around 1950 as a mathematical theory of conflict. It treats
situations where there are multiple decision makers, or “players,” each of whom
has a variety of different alternatives, or “strategies,” to employ.
When each player selects a strategy, there is some joint outcome to the game, for
example, his or her monetary payoffs. What game theorists do is to figure out
how best to play; in other words, how to go about picking the best strategy.
Who uses game theory? As I point out at times, many of the ideas in this book
have been striking enough and important enough to warrant a number of Nobel
prizes. Economists, biologists, and political scientists have been using game
theory for years. But the bigger news for the rest of us is that game theory has
been catching on, and helping businesses and governments strategize in a whole
host of ways. As you’ll also see, game theorists and neuroscientists have recently
been teaming up and are finding out what makes us tick.
Playing games and, especially, winning and losing are central to our culture.
Many of us are rabid sports fans who get a primal kick out of seeing our team
win. Being called a “loser,” on the other hand, is just about the worst insult
imaginable. Gambling is increasingly becoming a national pastime. But more
telling is that poker has become a “sport” we can watch on TV. It combines the
competitive and monetary elements of sports and gambling with a cerebral
dimension that many of us also crave.
Game theory has the same fundamentals to it: competition, money, and guile.
One enduring lesson, however, that I stress is how cooperation keeps emerging
—surprisingly, to everybody’s advantage—even in competitive situations.
One thing that sets this book apart from other game theory books is its
psychological angle. If you want to get ahead (or just get along) in your personal
lives as well as in the business world, you need to understand not just how
people ought to make decisions, but how they actually behave. This book
provides plenty of insights into both.