Why Saudi-Russia Oil War is a Game Theory Masterstroke

From a layman’s view, the ongoing Saudi-Russia oil war is a dumb move amidst the global coronavirus pandemic. But from a game theory perspective, it is a masterstroke.

Analysts have called the breakdown of Opec and the lifting of the supply cuts that kept the oil market balanced in the last two years anything from a spectacular blunder to collective suicide.

A new model developed by mean-field game theory investors, Fields Medal laureate Pierre-Louis Lions and Jean Michel Lasry, suggests otherwise.

The model shows that big low-cost oil producers such as Saudi Arabia must balance market-share aspirations and conflicting prices. Although Opec says that price stabilization is its main goal, from reality, this is far from the truth.

In the event oil prices increase, the monopoly benefits from higher revenue but loses market share to its higher-cost producers. However, the response by the other player drives up production cost which in return makes their investment inefficient.

As such, the monopoly regains control by ramping up his production and making a sharp change in prices.

It usually takes some kind of a shock to get the dominant monopoly to go into cliff mode. In the late 1990s, the catalyst was the negative demand shock of the Asian financial crisis. During the most recent oil market crash, in 2014, it was the supply shock of US shale oil. For some time, the model shows, the market had been waiting for the right signal. The coronavirus has provided it.

The steepness of the cliff is however unprecedented. The coronavirus impact is so huge that Saudi Arabia and Russia have a unique opportunity to test the limits of global storage capacity. 

Source: https://energypolicy.columbia.edu/research/op-ed/saudi-russia-oil-war-game-theory-masterstroke

How to reduce the game theory of panic-buying

As we face difficult times, we hope that everyone will draw closer and help one another in a bid to cushion from the harsh reality. Unfortunately, this is not the case, as it is evident in this COVID-19 pandemic.

As of writing, toilet papers are attracting exorbitant prices of eBay while fights in supermarkets are a norm. A man in Tennessee bought more than 17,000 sanitizers in a bid to sell them for a profit. In the UK, shelves in supermarkets are empty while long online queues are the norm of the day as people purchase groceries.

But we are also witnessing the best out of people as healthcare practitioners offer services overtime and people giving the elderly and most vulnerable uninterrupted space to do shopping.

The two approaches to this crisis can be summed up using game theory. In essence, it is not only what we do but also what others do. For example, getting the right groceries is dependent on our shopping behavior and other shoppers.

Experts say that our behavior selfish behavior is motivated by greed and fear. Greed comes in when the greedy are less concerned about others while fear pushes people to think that while they shop sparingly, other shoppers will not. As such, they go about hoarding.

So how can we stop hoarding? Researchers suggest emphasizing kinship between shoppers. This would cause them to put themselves in the shoes of the other person, and in so doing increase cooperation.

The other possible way is to down-play that other shoppers are panic-buying. Newspapers can avoid publishing empty shelves.

Source: http://theconversation.com/the-game-theory-of-panic-buying-and-how-to-reduce-it-134107

Application of Game Theory in Real Life

The game theory refers to a mathematical approach in studying strategic decision making. Game theory will lead to discovering the best outcome when given a set of choices to make by doing necessary evaluations on the benefits and costs of each of them. In game theory, there is a winner and loser. People make decisions every single day based on what is best for them or their loved ones. It is, therefore, possible to use game theory to improve or benefit in life. Some simple examples and instances where game theory helps you in getting specific skills include the following.

One if when you want to save money to purchase a car. If you are willing and wishing to buy a car at a cheaper price game theory will come in handy. What you do is know all the car dealerships around you with the kind of car that you need. Find out the best price they could offer. Once you explain that there are other dealers you are considering then the dealer you are dealing with will surely be scared to negotiate with you till you get the best price. The second instance is when you are investing in stock markets and shares. In this case, you are sure either to win or lose. The decision you put in play will expose you to either side. That is why you need game theory skills to calculate the possible outcomes that have a higher probability based on how the market is. You may also consider the company’s management and financial perspectives found in there. With such you are sure you make the right moves that will benefit you.

Reference:

How A Game Theory Can Help You In A Real Life

Game Theory Explained Behind Coronavirus Panic Buying

Whatever that is happening currently has happened in the past pandemics, for example, in 1918, when Spanish flu broke out. Around the world today lies a scene of empty rows in supermarket shelves where toilet papers were in plenty because of the coronavirus-induced panic buying. Someone is left to wonder what has changed all over a sudden. The experts got the answer to this, though. It lies in game theory. If every person was to purchase just what is needed, then there would be no shortages at all. However, when someone panics to buy stuff, then everyone is likely to follow suit. 

The wonder remains, buying a lot of toilet paper has never saved anyone from infection. People have also gone a mile ahead to hoard necessary items such as canned foods. According to the psychology of pandemics, people tend to do this as a symbol of safety. People need to do things that will keep them and their families safe because that is all they can apart from self-quarantine and washing of hands. Another theory brings it to close that people get rooted in evolutionary aversions to stuff that disgust and so it is seen clearly when they feel threatened with an infection. This explains why toilet paper just to avoid disgust.

These and many more behaviors seen during this period are a repetition of what happened in previous pandemics, which sent many panicked and others losing lives. When people are affected in such a manner, the best thing is to come together and offer each other a proper support system until the epidemic is gone for good.

Reference:

https://gulfnews.com/photos/news/coronavirus-south-korea-dials-up-virus-testing-with-hospital-phone-booths-1.1584445007168?slide=4

Using game theory to identify antibiotic resistance

Thanks to machine learning and game theory, Washington State University researchers have developed a new way to discover unrecognized antibiotic-resistance genes in bacteria. This discovery was 93 to99 percent accurate in three different types of bacteria.

The researchers, including graduate student Abu Sayed Chowdhury and Professor Shira Broschat in the School of Electrical Engineering and Computer Science, and Douglas Call in the Paul Allen School of Global Animal Health, report on their work in the high-profile journal, Scientific Reports.

Antibiotic-resistant bacteria is proving to be a growing and worrying nuisance around the world. Every year, millions of people are infected with drug-resistant pathogens and thousands of people succumb to pneumonia and other blood infections that are impossible to treat.

Currently, researchers are using genome sequencing to discover antibiotic-resistant genes by looking for similar sequences of genes in public databases. While this is ideal when dealing with known antibiotic resistant genes, it becomes daunting when dealing with new genes.

“There appears to be a vast reservoir of antibiotic resistance genes in the natural world,” said Call. “This tool allows us to identify presumed resistance genes that would not be recognizable based on simple sequence comparisons with public databases.”

In their study, the research team employed game theory, a tool used in several fields such as economics. The tool identifies how the behavior of one participant affects the other party.

Using ML and game theory approach, the researchers looked at the interactions of several features such as structure, physiochemical, evolutionary, and composition properties of proteins sequences.

“This novel game theory approach is especially powerful because features are chosen on the basis of how well they work together as a whole to identify likely antimicrobial-resistance genes — taking into account both the relevance and interdependency of features,” said Broschat.

Source: https://www.scitecheuropa.eu/using-game-theory-to-identify-antibiotic-resistance/97566/

The Risk of Nuclear Proliferation and War Is Growing

It’s been more than seven decades since Hiroshima and Nagasaki were hit by atomic bombs, and 50 years since the Nuclear Non-Proliferation Treaty came to effect. However, the world is on the edge of another nuclear war since the Cuban Missile Crisis.

The USA-Iran confrontation has seen the later become hell-bent to acquire more nukes and it seems this might happen sooner. Unfortunately, should this happen, other Gulf nations such as Saudi Arabia and Turkey will follow suit.

Currently, Israel is already armed and across Asia there are numerous nuclear hotspots. What if these bombs fall in the wrong hands, especially terrorists or non-state militia groups? Well, you guess is as good as mine.

To mitigate acquisition of more nukes, the world entirely relies on the Nuclear Non-Proliferation Treaty which has at least 191 signatories. Diplomats from these countries meet after five years to review the NPT and this year’s New York conference carries more fear than expectations. If game theory comes to play, the dread for an all-out war becomes eminent, which is worrisome.

The 1960 treaty was meant to stop the use of nuclear for military purposes. Countries such as China, USA, France, the UK, and the Soviet Union were to subsequently destroy their nukes while other countries were to halt the acquisition in return for help from the five countries.

Countries such as Israel, Pakistan, Indian and South Sudan did not sign, while North Korea withdrew.

Experts say that the treaty has been a success but need policing, especially from the United States. However, under the current USA regime, policing seems to be a pipe dream.

Source: https://www.bloomberg.com/opinion/articles/2020-01-09/game-theory-shows-risk-of-nuclear-war-is-growing-with-iran-rift

The Practical Use Of Game Theory In Accounts Receivable

For decades, game theory has been used to predict behavior and outcome of scenarios. However, these are not the only areas where the concept is essential.

In several behemoth companies, game theory is used to accounts receivable (AR) in a bid to increase the rate of collection and also offer customer lifetime value.

So how can you use game theory in accounts receivable? Let’s find out.

Seamless supply chain

Typically, a supplier and a buyer know each other’s steps. For example a supplier will send the buyer an invoice before transaction commences. The best part? As a supplier you know the next move of the customer.

So what can you do?

• Send reminders: This helps you discover errors in the invoice.
• Gain customer’s information: This will allow you to make better decisions in the future. For example you can track their credit score.

Asymmetric information game

Asymmetrical information that each player has affects the timeliness of payments. For example if the invoice was received by the wrong person, had errors, or never reached the customer, then delay in payment is expected.

What can you do?

• Be productive: Avoid overlooking simple mistakes as they might snowball and case disaster at the end. Ensure you import data accurately and when you make mistakes, make prompt corrections.
• Provide invoices beforehand: Send them with other supporting documents such as proposals to avoid excuses from the buyer when making payment.

Manipulative games

Players use manipulative tactics such as threats to change the game. Ensure that your move are unpredictable and at the same time irreversible. Avoid changing your mind even when you feel like and do not fail to meet your commitments.

Source: https://www.forbes.com/sites/forbestechcouncil/2020/01/08/the-practical-use-of-game-theory-in-accounts-receivable/#6115e646233a

Experts in game theory expands method to incorporate new categories

Tarun Sabarwal is a game theory expert who is a professor of economics at the University of Kansas. He creates and studies mathematical models that can be used to predict behavior.

“Game theory can be explained as everyone is doing what they want to do, but what each person does affects the well-being of others through what we call ‘payoffs.’ For firms, that means profits. Or for countries, that means social welfare,” he says

His concepts have been published in the Games and Economics Behavior journal, which is the best in the game theory sphere. Eric J. Hoffman is the co-author of the article.

“We went in understanding the benefit of the global games method. Our goal was to see if we can expand this tool to allow for analysis of additional classes which it can’t cover presently. And we have managed to do that,” he says.

It is a daunting task to explain the strategies of game theory in a short article. But in an abridged article coupled with Sabarwal analogies, the concept becomes more graspable.

“A basic metaphor is that in a group of individuals, if we coordinate with each other, we can get to a better outcome. Let’s say we have two technologies … In any organization, there is a benefit from coordinating on one technology. Let’s just select one because if we have both, it won’t be as good as even going with the worse one,” he said.

Experts in game theory consider both outcomes acceptable. However, one outcome is stronger than the other one.

Source: https://phys.org/news/2019-12-game-theory-expert-method-incorporate.html

Facebook taught an AI the ‘theory of mind’

Recent results in competitive games have shown that AI systems can outplay humans by far. But when it comes to real life, we need AI to work with us not against us.

As such a research team from Facebook taught an AI how to play the cooperative card game Hanabi (the Japanese word for fireworks), to gain a better understanding of how humans think.

The team particularly taught the system the theory of mind:

“Theory of mind is this idea of understanding the beliefs and intentions of other agents or other players or humans,” Noam Brown, a researcher at Facebook AI, told Engadget. “It’s something that humans developed from a very early age. But one AIs have struggled with for a very long time.”

“It’s trying to put itself in the shoes of the other players and ask why are they taking these actions, “and being able to infer something about the state of the world that it can’t directly observe,” added Brown.

Hanabi is game created by Antoine Bauza a French game designer. Hanabi charges its two to five players to construct five, 5-card stacks. Each stack is color coded and must be ordered numerically from one to five. The goal is to complete all the stacks or get as close to 25 points (five points per stack/five stacks) as possible once the team has run out of moves.

The interesting part about Hanabi is that the players do not know what is in their hands. They have to hold the cards looking away from them in such a way rivals will see what he or she I holding. The game is driven by sharing information between players.

Source: https://www.engadget.com/2019/12/06/facebook-taught-an-ai-the-theory-of-mind/

Grand unified game theory can represent all two-player games

There is now one game to rule them all. Any two-player interaction – which means anything from international disputes to childhood stand-offs – can be analyzed using a unified theory of games. Previously, different games had to be used depending on the situation.

Thanks to game theory, one can predict the outcome when two parties interact such as countries in a trade war, children fighting in the backyard and even animals fighting for territorial control. It can also allow you to come up with strategies that will enable seamless winning.

Jin Yoshimura and his colleagues at the Shizuoka University in Japan came up with game model that can account for the variables in a two-player game. The participants have to choose between betrayal and cooperation.

The game is based on the prisoner’s dilemma situation in which each of two criminals are told they can either cooperate with the other inmate and stay silent or betray them by testifying that the other person committed a crime.

In their game, the two participants are expected to lift a heavy bag. Since there is an energy cost for lifting the bag, each of the participants either pays a fine or receives a reward based on how successful the bag is lifted.

The bag can be carried by both players or individually and by varying the number of players choosing to cooperate and the rewards or costs in the scenario, Yoshimura says their game can encompass all other two-player games.

Previous games have only factored in reward and costs rather than the number of people cooperating. According to Kevin Zollman at Carnegie Mellon University in Pennsylvania the scenario “allows for a more intuitive way of moving from one game to another.”

Source: https://www.newscientist.com/article/2224065-grand-unified-game-theory-can-represent-all-two-player-games/#ixzz67bHGHkIQ