Game Theory

= "Game Theory is the science of logical decision making in humans, animals, and computers".: "We now have mathematical and theoretical approaches to predict how people will act, given certain adversarial conditions." [1]

Context

Game Theory is often used to discuss the nature of human cooperation.

See our entries on the Prisoner's Dilemman and the Assurance Game

Our interest is focused on Cooperative Game Theory and the calculation and distribution of cooperative surplus.‎

Description

From the Wikipedia at http://en.wikipedia.org/wiki/Game_theory:

"Game theory is a branch of applied mathematics that studies strategic situations where players choose different actions in an attempt to maximize their returns. First developed as a tool for understanding economic behavior and then by the RAND Corporation to define nuclear strategies, game theory is now used in many diverse academic fields, ranging from biology and psychology to sociology and philosophy. Beginning in the 1970s, game theory has been applied to animal behavior, including species' development by natural selection. Because of interesting games like the prisoner's dilemma, in which rational self-interest hurts everyone, game theory has been used in political science, ethics and philosophy. Finally, game theory has recently drawn attention from computer scientists because of its use in artificial intelligence and cybernetics." (http://en.wikipedia.org/wiki/Game_theory)

Applications

"* In public policy, game theory is used to predict how nations will act and react.

• In war, game theory is used to predict the moves of the opponent.

• In cryptography, game theory is used to predict potential cyberattacks.

• In token design, game theory is used to predict the actions of token-holders in response to embedded incentives.

• In financial markets, game theory is used to predict stock market decisions

Typology

Cooperative vs Non-Cooperative Games

Kyle Birchard:

"Cooperative Games: Imagine an interaction for which it is the case that everything that both is affected by the actions of the players and is of concern to any of the players is subject to binding (meaning costlessly enforceable) agreement. This is termed a cooperative game. The term does not refer to the feelings of the parties about each other but simply to the institutional arrangements governing their interactions.

Non-cooperative Games: More commonly, however, something about the interaction is not subject to binding agreement. Such situations are modeled as noncooperative games.

Notice how this doesn’t necessarily refer to the ability or desire to cooperate, Cooperative Games simply refer to the enforcement level found in binding vs non-binding agreements.

In the social arrangement between an employer and employee, part of the interaction may be addressed cooperatively, as when an employer and an employee bargain over a wage and working hours. Other aspects of the same interaction may be noncooperative because of the impossibility of writing or enforcing the relevant contracts.

Examples include how hard the worker works or whether the employer will invest the resulting profits back into the company. When the employer is measuring productivity, he/she plays a cooperative game if he/she has a ticker at the door that tracks when the employee walks in and out. However, if the employer can’t verify the quality of work or effort put in, then the game is non-cooperative.

In technology jobs, and inside startups especially, it’s often difficult and costly to track worker productivity at work → making it a non-cooperative game. This is why we hear so often about ‘company culture’ and establishing a common ‘mission’. When an employer has no way enforce certain agreements, and rational employees can slack off without repercussions, therefore a narrative of ‘culture’ is used to imprint made-up social contracts.

Most commonly, social interactions are categorized based on whether the game representing it is cooperative or noncooperative and whether the payoffs of the game are common interest or conflict." (https://medium.com/blockchannel/cryptoeconomic-theory-game-theory-basics-fb3a49aab1a8)