Plato, in two of his texts, the Laches and the Symposium,
explains how Socrates recalls an episode
from the famous battle of Delium in 424 BC
between the Athenians and the Boeotians.
The synopsis of his passage goes as follows:
Consider a soldier at the front of the Boeotian line
having the following realization:
If our defense is successful, I still risk the chance of dying.
If our defense is unsuccessful, I will almost certainly die.
Based on this reasoning, it seems that the best alternative for the soldier
is to run away regardless of who is going to win the battle.
Now imagine if all soldiers
were to exhibit this very reasoning at the same time.
If such an event would occur, they would all probably realize
that they would be better off running away.
This seemingly simple yet incredibly reasonable hypothesis
is one of the first historical instances of game theory.
Flash forward 2368 years in 1944
Hungarian-American mathematician John von Neuman
published a book titled “Theory of Games and Economic Behavior.”
This foundational work
contains the method for finding mutually consistent solutions
for two-person zero-sum games.
This great book introduced game theory as a concept,
thus extending its application to fields like economics, politics,
and sports and leading to the expansion of the array of scientists
that showed interest in it.
One of those scientists was the legendary John Nash
who won the Nobel Memorial Prize in Economic Sciences in 1994
and popularized the idea of Game Theory as we now it today.
Something very fundamental about game theory
is that it doesn’t get its name from the preconceived notion of a game
as we understand it:
A game in game theory is any interaction between multiple people
in which each person’s payoff is affected by the decisions of others.
Namely, any single interaction you are part of
can be analyzed with game theory
in order to produce the most beneficial outcome.
But before we get into the mechanics, let’s lay out the main principles:
1. A game needs to include multiple players (>2).
2. The players need to interact with each other.
3. There needs to be a reward.
4. We assume that players act rationally.
5. We assume that players act according to their personal self-interest.
Prisoner’s Dilemma is the most widely mentioned game in game theory
The basic premise is how to establish a mutually beneficial strategy
between two members of a gang that got arrested
and face potential imprisonment.
The rules are as follows:
1. The players of the game are Prisoner A and Prisoner B.
2. The players can’t communicate with each other.
3. If A and B each betray the other, each of them serves 2 years in prison.
4. If A betrays B but B remains silent,
A will be set free and B will serve 3 years in prison (and vice versa).
5. If A and B both remain silent,
both of them will only serve 1 year in prison (on the lesser charge).
This matrix depicts the different choices of each membember
and each number signifies the number of years to serve according to each.
Prisoner’s Dilemma exemplifies to a great degree the substrate of human nature.
The irrational self-interest driven gang member
will most probably choose to betray his counterpart,
thinking that he will get a better deal.
This idiosyncratic choice
will most certainly lead to a disaster for both parties
since they will get the worst deal possible.
The obvious, mutually beneficial choice here is to keep silent.
The main idea behind this game is to expose the inherent tendency
of humans to display a lack of cooperation in this and similar games.
Game theorists usually coin the terms dominant strategy and Nash equilibrium
to distinguish the kind of strategies followed by the players.
Those two terms are used usually together
and form the basis upon which game theory is founded.
Dominant strategy refers to strategies that are better than other strategies
for one player, no matter how the opponent may play.
Those strategies might be great in the case of non-alternatives
but if you are part of a game with more dominant strategies
(each player has a dominant strategy) than they aren’t optimal.
In the prisoner’s dilemma case,
the dominant strategy for each player is to betray.
And here is where the term Nash equilibrium comes into play.
The term is used since John Nash
explained the essentiality of equilibrium in his landmark work –
Equilibrium points in N-Person Games.
In essence, what he proposed is that even in high-level competitive games
like Google vs Apple, or USA vs Russia
there exists an “equilibrium”
where no side would benefit by changing its course.
At this equilibrium, each side knows its adversary very well
and sticks to its strategy.
For instance, in the prisoner’s dilemma, the Nash Equilibrium
is the upper left square of the matrix, which means both prisoners need to stay silent.
What makes Nash’s theory of equilibrium so special,
is that it presupposes that in each game
there is at least one point of equilibrium and all players will be better off
trying to find it and form their strategy around it.
This momentous revelation helped people in disciplines like politics, war,
economics, business and social theory understand the world better
and form better strategies.
The inception of Nash equilibrium was portrayed exceptionally
in the wonderful movie “A beautiful mind.”
Even if people or companies rationally follow their own self-interest,
the best outcome is hard to reach when they can’t or don’t cooperate.
Therefore, the best strategy
is to continually scan the “market” for potential alliances.
People who can forge strong alliances will eventually become part of
oligopolies and thus dominate their market.
The rest will consequently be ostracized.
That’s what I love about game theory. It approaches the “game of life”
from its most axiomatic principle, that of evolution.
Evolution equals adaptation
and, therefore, life is an omnipresent game of adaptation.
Humans thrive in cooperation
because it is the main strategy that helped us survive and thrive
after years of adversity
and struggle to compete against different forces in nature.
The sad thing is that after establishing our sovereignty,
we overpowered other species and, in most occasions, nature itself,
but eventually we turned ourselves against each other.
There are a variety of factors that affect
the descent to the point we have reached,
but a game theory mindset can work to our advantage.
I always believed that change and equilibrium start at the micro level.
And that is something we fail to grasp
because we are usually consumed by events at the macro.
It is interesting to be in the know and discuss and argue
about politics and national strategies,
but, at the end of the day, the trigger is pulled by the respective strategists.
What each of us could do instead is to use game theory
in our most challenging decisions and in our closest relationships.
Regardless of what decision you have made
and how this will impact your future, think like a game theorist.
Ponder questions like:
Are the actors in the situation rational?
Are we able to reach Nash equilibrium?
Do they act according to their self-interest?
Do they understand the rules of the game?
Is their dominant strategy really that dominant?
If you see that most game theory parameters aren’t met,
you know that you have to change your approach.
You either need to also act irrationally, which is something I wouldn’t suggest,
or you need to step away and find better players or games.
The choice is always yours.
Life oftentimes feels like a game.
And, usually, the winners are the ones who know how to play.
Hi everyone, today is a great day.
It is a great day because this is my first attempt
to head towards a new trajectory in my creative endeavors.
Most of you probably know me from my blog “The Quintessential Mind”
where I have been focusing on creating essays on personal development,
psychology, philosophy, culture and sometimes even business.
From now on, I will also try to immerse myself in the art of video making
by transforming some of my essays into video essays
and, thus, adding a more visual aspect to my words and ideas.
I started with game theory because it is a topic that always fascinated me.
It is quite a complex topic, but even by understanding its fundamental principles
one can experience tremendous benefits in the way one makes decisions.
I hope you enjoyed this video as much as I enjoyed creating it
and that it worked as a great primer to warm you up for what is about to follow.
If this is the case, please make sure to like it,
share it with people that you think will benefit from it
and also subscribe and hit the notification button
so you can be notified when I will release my next video
which will happen pretty soon.
Thanks again for watching. Take care.