Game Theory Decides Where Your Saturday Night Takeaway Comes From

For the last three years, a group of researchers has been approached by a couple of takeaway business in the Perth area. Their goal, to change how they receive orders in a bid to make more profit.

The common problem they had was a disruptive type of business championed by “Just Eat et al, the online food order platform (OFOP).” The business model allows customers to search, place and pay for their order on the go.

Unfortunately for the takeaway businesses, OFOP tends to benefit. This is because Perth marketplace is not driven by better programming or cost effectiveness but human nature. Their advantage is due to human nature not to cooperate even when doing so might be advantageous to them.

This dilemma can be explained through a 1950s quirk which has become the basis of game theory and ethics. The quirk is widely referred to as “The Prisoner’s Dilemma.” Here is the breakdown.

10 prisoners are serving a 10-year sentence.

They are told by their jailers that if they all raise their hands, each of their sentences will be reduced to two months.

They are also told by their jailers that if one of them chooses not to raise their hand, he can go free.

However, the prisoners are also warned that if two or more of them chooses not to raise their hands, then all their sentences will be doubled to 20 years.

The best thing for the prisoner to do is raise his hand to benefit the group. But as long as there is individual benefit, all prisoners are tempted to keep their hands down. As such, each prisoner’s sentence is extended.

Source: https://www.businesscloud.co.uk/news/game-theory-decides-where-your-saturday-night-takeaway-comes

Have you Applied Game Theory Today?

A couple of months ago, we witnessed collaboration of rival telecommunication giants, Reliance Jio and Bharti Airtel and Vodafone against the Telecom Regulatory Authority of India. This was in a bid to demand lower 5G spectrum prices.

Few months ago Reliance rivals had accused the telecommunication company of slashing prices which caused disruption in the market. On its side Reliance had accused its rivals of charging high interconnection usage charges.

Meanwhile the Competition Commission of India had in a recent case penalized airlines such as Spicejet and Indigo for colluding to control air ticket prices. This is a clear indication of what happens in the business world.

Players always face dilemmas that can either cause competition or collaboration. Such instances might at times turn out ruthless and unethical, and this is what the authority calls games.

An ideal way to explain these games is through game theory. Game theory is the study of how people or businesses employ tactics in case of competition. It highlights the outcomes of an individual actions which are not only determined by his decisions but also of competitors.

It is more relevant in oligopoly markets where few firms make decisions and control the entire industry. As such, each player has to factor in what his or her decisions will affect competitors and how they will react.

For example if Indigo decides to slash air tickets, it expects to make profits and attract more clients. However, the final outcome will depend on the decisions of the other airlines such as Spice Jet. Not only is game theory rampant in business but also in our daily life.

Source: https://www.deccanherald.com/opinion/in-perspective/have-you-applied-game-theory-781103.html

Boris Johnson Notes Trump’s Tactics to Keep EU Guessing on Brexit

A scenario is used to explain the game theory, whereby two cars are hurtling towards each other, down a narrow lane. Both vehicles have the option of pulling over, but neither driver wants to give way first. In-game theory, this scenario shows the use of models to show how rational decision-makers interact. Usually, game theory is massive in economics and in the present circumstances, which are hardly surprising since two key political issues lend themselves to game theory analysis.

The US-China trade war is one, where the two cars are heading towards each other down the country road being driven by Xin Jinping and Donald Trump. The vehicles have already ignored many of passing cars along the way, and a head-on crash is a possibility. Both drivers are aware of the risks bus none wants to lose.

Trump made getting concessions out of China a severe issue for his political base while Xi is a self-styled strongman already going through internal threats to his authority from the protests in Hong Kong. Previously, trade talks between officials from Washington and Beijing were done in Shanghai. This seemed like a hopeful sign, an indication that the leaders of the two biggest economies globally were fully aware of the ills of protectionism.

However, Trump’s way of playing the game is to make his opponents guessing. He chose that moment to announce an unexpected plan, a ten per cent tariff on $300bn of Chinese imports into the US which if implemented, meant virtually nothing China sells to the US will be exempted from the duties.

Trump says that he wants a deal with Xi; on the contrary, he wants a transaction that involves Xi getting into the passing place while he zooms past. Trump’s strategy for getting what he wants includes putting his foot on the accelerator rather than the break. The White House assumes that it is a return of the Cuban missile crisis, yet another excellent example of game theory.

Reference

https://www.google.com/amp/s/amp.theguardian.com/business/2019/aug/04/boris-johnson-takes-note-of-trump-game-theory-to-keep-eu-guessing-on-brexit

A Game Theory Scholar Believes Trumps Unpredictability Works Better in Poker than Politics

In many cases, politics is seen as a type of game. In order to win, a group or a person needs to gain more power than other players to advance their agenda. Victory can be achieved by cooperation with other contenders, domination over them or a combination of the two.

Also, a person or a group can decide not to take part in the current version of politics while they look into inventing their own game with different rules. The rules of the game depend on the structure of the political system. The contenders in the game send signals to each other as a means of determining if they will cooperate or compete. The contenders then decide how or if they will follow the rules of the game.

The game of politics is played both internationally and domestically. Internationally takes the form of alliances, treaties, transnational movements and other ways of coordinating and structuring a relationship.

Both elites and average people do take part in the game of politics. However, the ability to influence the results of the game is not shared equally. The elites can rig the rules of the game to their liking while still announcing that everything is fair and their victory is justified. On the other hand, average people need to find ways to negotiate and win in a game where the odds are more often skewed against them.

In the latest game of American politics, the question lies as to whether President Trump and some observers have suggested playing an elaborate game whereby the Democrats and his other rivals are not able to comprehend. Or if he is muddling through the instincts and force of will as he pushes the game of American politics to change it to his desires and dreams.

Reference

https://www.salon.com/2019/09/20/donald-trump-and-game-theory-expert-says-no-brilliant-3-d-chess-is-involve

Why You Need to Care About Game Theory

With the recent death of Nobel-winning economist and mathematician John Nash, people are suddenly starting to talk about game theory again.

In particular, Nash is known for developing the Nash equilibrium, which Chang describes as “a stable state in which no player can gain advantage through a unilateral change of strategy assuming the others do not change what they are doing.”  

Nash’s work considered situations other than one person wins and one person loses. It also covers situations where everyone wins—or everyone loses. Nash’s work also considers possibilities such that people wouldn’t act rationally, and that people wouldn’t necessarily make the best decisions possible.

While applications of the Nash Equilibrium are usually thought of in terms of politics, it comes up in business as well. Pricing of goods and supplies, the wages companies pay, competitive bidding.

For example, when the U.S. government in 1994 sold off large portions of the electromagnetic spectrum to commercial users, it used Nash’s equilibrium theory to design a multiple-round procedure to maximize both the revenues to the government and the utility of the purchased wavelengths to the respective buyers. “The result was highly successful, bringing more than $10bn to the government while guaranteeing an efficient allocation of resources.”

In fact, Nash equilibria are relevant to many types of government policy decisions and business acquisitions.

Ultimately game theory involves putting yourself in the other person’s shoes. “You have to be able to assess the benefits that each party might gain and the costs that they will have to incur as a result of any possible action that they might choose to undertake.”

Ref: https://www.laserfiche.com/ecmblog/why-you-need-to-care-about-game-theory/#

What game theory tells us about politics and society

A professor in MIT’s Department of Economics, he deploys game theory to illuminate observed behavior across a range of political and social institutions. Wolitzky builds models concerning war and international affairs, labor relations, networks, technology adoption, and more.

Take “Cycles of Conflict,” which appeared in the American Economic Review in 2014, co-authored with colleague Daron Acemoglu. As the paper notes, analysts have observed that misperception and distrust have led to violence and warfare in many geopolitical situations — Uganda, Kenya, Northern Ireland, the Balkans, and more. Indeed, as Acemoglu and Wolitzky point out, it was also the explanation Thucydides offered for the origins of the Peloponnesian War.

In any case, fears of inevitable conflict can lead to pre-emptive warfare. But how do such situations de-escalate?

These types of coherent models can play an important role in the intellectual ecosystem by organizing and illuminating messy sets of  empirical data. And Wolitzky is determined to model large-scale events, not just micro-level individual decisions.

Wolitzky says the “collegial” atmosphere in the MIT Department of Economics is very important for his work. But some of his key insights are due to quiet reflection.

Sometimes, Wolitzky develops models that refer to one sphere of life, such as politics, and later realizes that parts of them apply to something else entirely. The “Cycles of Conflict” model fed into a new paper he has authored alone, “Learning from Others’ Outcomes,” forthcoming from the American Economic Review, which is about technology adoption.

 “It’s interesting to see the diversity of things students have ended up working on, as you might imagine,” Wolitzky says. “Different students work on models of strategic communication, or the economics of Bitcoin — it’s been all over the place.”

 “The norms here get passed down from generation to generation,” he concludes.

Ref: http://news.mit.edu/2018/game-theory-politics-alexander-wolitzky-1204

 Situations That Triggered the Birth of Game Theory

During the rise of the Nazis into power, cowardice and indifference among the German intellectuals made them not to speak against it. This led to the persecution of groups that were targeted. They felt it was not their responsibility; hence, they expected someone else to come and raise the voice against those evils on their behalf. They were wrong. Fascism grew, and its effects were felt by all.

The second issue was on greenhouse gas emissions into the atmosphere, global warming, and problems associated with them. It became too difficult to reach an international consensus about the same. While it was evident through scientific research that concerted effort is what was needed at that hour, political wrangles at state-level were prioritized hence overriding the need of making this long term assurance. Every nation in the world desires that the challenge of greenhouse gases and global warming be tacked, but no country is ready to take responsibility first.

The study of this dilemma between selfishness and altruism (and a keener consideration of what seems rational and obvious based on an individual is highly irrational when other social factors are considered) and many others led to the domain of Game Theory. This is a field that rose to prominence in 1928 after the publishing of the paper “On The Theory of Games of Strategy” by John von Neumann.

An excellent example to illustrate this is the prisoners’ dilemma. Two prisoners put in different cells and are meant to make a rational decision based on the other’s point of view as that determines what happens to them leads to an endless loop of thoughts since none knows what the other is thinking of. The game theory thus explains that rationalism is relative, and the required result must consider other factors.

References

The Mousetrap, Fascism & Game Theory

Game Theory Supports the New PM’s Bid to Have the U.K. Out of The EU

When he made his first-ever speech as the UK’s prime minister, Boris Johnson repeated the line severally that the U.K. will “come out of the European Union the 31st of October, no ifs or buts”. To many, his stand and position on this line would seem very irresponsible. This is because it is viewed as either the new PM is already being unfair by trying to tie the hands of the country prematurely into a tough place to negotiate with the EU or it will force him to break the promise which has been made to the public many times in less than 100 days of taking over from his predecessor, Theresa May.

However, in the game theory framework that was laid down last year December, Johnson’s approach to this issue is in a better place to unstuck these two parties from the dilemma that has so far been hurting both sides. The framework had revealed that May was likely to get stuck in the middle of getting the U.K. out of the EU. According to the structure, May had failed to unite her Conservative Party; hence, she was unable to secure a majority in Parliament. As a result, she ended up having no political stamina to have her pull through negotiations with the EU to end the battle. This led to the many talks to extend deadlines that have ended up hurting the country more than it did before.

Johnson, on the other hand, has exhibited all these that were outlined in the game theory framework. He was elected the leader of his party by a vast majority, and therefore, he is rightfully placed to win the negotiations with the EU. He only needs to have a large number of members of parliament on his side.

References

https://news.yahoo.com/game-theory-backs-johnson-hard-060011425.html

According to Enrique Armijo, Associate Professor of Law and Associate Dean of Academic Affairs, Elon University, Trump’s speech had much speculation that the president would declare an emergency under the1976 National Emergencies Act to pay for $5.7 billion border wall which was behind the government shutdown, funds that House Democrats had refused to provide.

However, this did not happen as much as reports had it that the administration was still considering the option. The constitution issues associated with this kind of declaration are far from clear. To begin with, the facts underlying whether an emergency exists are disputed.

A National Emergencies Act Declaration for wall funding would immediately be countered in court. Congressional Democrats would contest that this is a usurpation of their legislative appropriation power. The State and private landowners would also argue on their land being taken by eminent domain for the wall project considering that the federal government owns less than a third of the area needed for the construction.

Regardless of the lack of legal clarity, and the inevitable setbacks that such a situation would bring; there is one more straightforward reason why the administration couldn’t declare an emergency. A goal that was likely apparent even to the president who had shown himself to be not so good a dealmaker as was advertised.

The reason is that; the formal declaration of an emergency would limit Trump’s capability of striking a compromise. Without this, Trump would be able to declare victory and sign a bill bringing back the government after finding a middle ground with Democrats and then trying to sell the compromise to his angry base.

However, once he declares the wall should be there or nothing, the issue would be resolved by the courts, which could tell Trump that he could have nothing at all.

Reference

https://theconversation.com/trump-calls-border-a-crisis-of-the-soul-3-scholars-react-to-his-oval-office-address-109597

It has been noted that introducing incentives to encourage specific behavior towards a particular outcome in institutions, individual organizations, or organizations can result in unintended consequences. The mathematical model of strategic game theory helps to predict outcomes in such situations as presented by Trun Sabarwal, the De-Min & Chin-Sha Wu Associate Professor and associate chair of economics at the University of Kansas.

According to Sabarwal, he studies decentralized and interdependent decisions and their collective impact when everyone behaves in that particular manner. In some recent papers, Sabarwal studied important classes of behaviors with strategic complements and substitutes.

In games with strategic complements, people have incentives to move in the same direction as others. For instance, if more depositors are going to the bank and withdrawing their money, it is in the best interest of the remaining people to withdraw their money before cash runs out of the bank. Also if more people are using Facebook or Twitter, other users will more likely use these platforms since their marginal benefit from doing so goes up.

In the other end of the spectrum, participants could have incentives to move in a direction opposite from others. These games have a strategic substitute. If many individuals are commuting on the road in the same direction, there would be an overcrowding effect. It is in the best interest of other commuters to move away from that direction, e.g., by using a different road.

Sabarwal said that there are many situations where interaction among decisions of participants could be modeled naturally as strategic complements or strategic substitutes. There are given conditions where both substitutes and complements like police seeking to foresee the movements of criminal suspects moving in the opposite direction to avoid capture. Another example is when a goalkeeper is trying to move in the same direction as a penalty shot and the t seeking to shoot in the opposite direction.

Reference

https://www.google.com/amp/s/phys.org/news/2019-01-economists-game-theory-outcomes-incentives.amp