Game Theory

So today I met up with Xiyao, Febby and Suyee in the afternoon to discuss about the infographic we were going to make for an Economics Competition. We were required to design an infographic based on Game Theory, and Im happy we managed to finish it within those few hours 🙂 It’s time to study now (cos im wayyyy behind time) but I shall take a few more minutes to post about Game Theory. I think it’s a pretty interesting topic to learn about, and if you’re interested you can read on or if you are too lazy to understand it you can just close this tab hahaha. But I promise you, there’s a bonus at the end, so if you read on you will be rewarded ^^

Game Theory is a study of rational and strategic decision making, common used in economics and psychology. If you take H3 Econs you will probably study it in greater detail, but I didn’t so I have only a superficial knowledge about it. Another term for Game Theory is Nash Equilibrium, which is is a solution to a game involving two or more players who want the best outcome for themselves and must take the actions of others into account. When Nash equilibrium is reached, players cannot improve their payoff by independently changing their strategy. This means that it is the best strategy assuming the other has chosen a strategy and will not change it. For example, in the Prisoner’s Dilemma game, confessing is a Nash equilibrium because it is the best outcome, taking into account the likely actions of others. Let me illustrate through the example of the Prisoner’s Dilemma game.

The scenario

Robin and Tom are prisoners: They have been arrested for a petty crime, of which there is good evidence of their guilt – if found guilty they will receive a 2 year sentence. During the interview the police officer becomes suspicious that the two prisoners are also guilty of a serious crime, but is not sure he has any evidence. Robin and Tom are placed in separate rooms and cannot communicate with each other. The police officer tries to get them to confess to the serious crime by offering them some options, with possible pay-offs.

The options

Each is told that if they both confess to the serious crime they will receive a sentence of 3 years. However, each is also told that if he confesses and his partner does not, then he will get a light sentence of 1 year, and his partner will get 10 years. They know that if they both deny the serious offence they are certain to be found guilty of the lesser offence, and will get a 2 year sentence.

The pay-off matrix

Prisoner's dilemma

What would you do if you were one of them? Give an answer before you read on.

The dilemma is that their own ‘pay-off’ is wholly dependent on the behaviour of the other prisoner. To avoid the worse-case scenario (10 years), the safest option is to confess and get 3 years. Cos assuming you are Robin and if Tom confesses, you should confess since you can get a lighter sentence and if he denies, you should still confess since 1 year is better than being imprisoned for 2 years. Same for the perspective of Tom. Hence, the greatest benefit for both parties is to confess. If collusion is possible they can both agree to deny (and get 2 years), but there is a very strong incentive to cheat because, if one denies and the other confesses, the best outcome of all is possible – that is 1 year. Hence, the situation where they both deny is not stable. Rather, the safest option is to confess and hence that box is the Nash Equilibrium.

Adapted from source: http://www.economicsonline.co.uk/Business_economics/Prisoner’s_dilemma.html

Though it may seem very economics, this theory is quite psychological too. It can be applied to many real-life situations, where parties will choose the outcome that will benefit them the most, and won’t cause them to lose out either. If you think about it, if everyone in the world was a better person, then the world would be better place to live in. If Robin and Tom were nice people and they both trust each other and choose to deny, their sentence will be soooo much lighter. This just makes me depressed thinking that many situations in the world can actually produce a better outcome if everybody decides to be nice. But I guess, that’s not possible, right?

If you are interested in game theory like me, you should “like” my team’s infographic when it comes out! HAHAHA. Please support us in this competition >< Our infographic will illustrate many more real life examples about Nash Equilibrium. Mann I love econs but it seems like I won’t be studying it in uni..? Anyway thanks for reading and as promised, here’s the bonus post:

I read Zheyi and Grace’s blog, and felt quite happy after reading them. From Zheyi, I read the post “NTS”; and from Grace, the post “I grew up”. Both of them are leading quite enlightened lives (?) now hahahah and I feel proud to be part of their lives, their interesting journey and Im glad that they are in mine 🙂 Anyway, thanks Grace for letting me be the first one to know if you ever got together with him, I feel so honored hehe 😀 I promise you that you will be the first one I tell if I got together with anyone too HAHA. Looking at their posts gave me more courage, maybe I should just risk it and pursue what I truly want. True, I have been deeply hurt in the past but the past is already in the past, can I really step out of my comfort zone and try it myself for once..? I know if I hesitate any longer I might miss my chance and regret, but this period is really such a stressful one and I don’t want to be a distraction to anyone ): I really hope that person is willing to wait for me, though its abit selfish of me to ask you to do so, so it’s up to him. But I will be really really sad if he doesn’t……. ohwell I typed too long HAHAHA eh this bonus is really bonus if you read it! To anyone out there, don’t be scared about being the one who cares/loves more, cos the world really needs more of such people! It’s hard to wait, but even more difficult and painful to regret. Just give it your best shot and put your best into it, cos if it doesn’t work out, at least you know you have tried. Anyways, I spent too long on my blog back to studying omg

Kai Lin 🙂

P.S HAPPY BIRTHDAY SUYEEEEEEEE

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