Monthly Archives: May 2011

An introduction to Game Theory (Lesson 1)

Dear Readers,

Hello again. Posting on this blog after a long time. I was busy juggling between my studies and other things. I still am, but, I’ve decided that I won’t neglect my blog any more . In short won’t be that lazy again :p So here is my new post. I hope you find it interesting and helpful.

I’ve started taking an online course on my hubby’s “request” because he want me to learn more about my area of study with him, since I am doing MBA :p He could be quite bossy at times ūüėČ Enough gossip….Now let’s get back to the topic. So the course that I am taking is “An introduction to game theory”. I don’t know how long I’ll continue to take it, but as long as I do, I’ll keep you guys updated ūüėÄ

GTSo here is the summary according me of the first lecture.

In several types of situations agents have to think strategically. They have to take into account that their own actions influence the payoffs of other players, that other players are aware of this interaction, and that they adjust their own behaviour accordingly. Game theory analyses games with strategic interactions and tells us how rational players should play such games.

So in this lecture we played a game called “The Grade game”. In this game we were asked to do the following:

First of all we were to write the letters “alpha” or “beta” on a form without showing it to our neighbours.

Then, we were told that our form will be randomly paired with another form & neither us nor our pair would ever know with whom they were paired.

After that we were told that:

  1. If you put ”alpha” and your pair puts “beta” , then you will get grade A, and your pair grade C.
  2.  if both you and your pair put “alpha” , then you both will get grade B-.
  3.  if you put “beta” and your pair puts “alpha” , then you will get grade C, and your pair grade A.
  4.  if both you and your pair put “beta” , then you will both get grade B+.

After that the results were put in a matrix with both my (in rows) and my pair’s results (in columns). The choices made in this game i.e alpha & beta are called strategies while the grades like “B-” and “B+”,¬†etc.¬†are the outcomes. Will¬†attach¬†the matrices in my next post ūüėČ

So now the question arises, what should a rational person choose in this Grade Game? Should he go with alpha or beta? Well that depends on the possible payoff that each outcome yields for that person and important that outcome is to that person. It is just a matter of priorities about which the game theory could do nothing. But what it could do is tell you how to play the game once the payoffs are known.

So the four important lessons derived from this lecture were:

  1. You should never play a strictly dominated strategy.
  2. Rational play by rational players can lead to bad outcomes .
  3. To figure out what actions you should choose in a game, a good first step is to figure¬†out what are your payoff s (what do you care about) and what are other players’ payffo s.
  4. If you do not have a dominated strategy, put yourself in your opponents’ shoes to¬†try to predict what they will do.

Hope you find it useful folks ūüėČ

Have a great day!