Game theory

1. Oct 24, 2009

MissMath

hi nerds!i was wondering if somebody would kindly explain to me what game theory is and its applications and uses! i guess it is related to marketing. please give me informations and details. i tried googling and wiki but they diidnt help.

2. Oct 24, 2009

TheStatutoryApe

Broadly speaking it is the application of 'game' like strategies to real world situations. While it may seem obvious at first that a certain course of action is in your best interest if you were analyze the situation further and determine the motivations and potential actions of the other persons involved, like determining an opponents best moves in a chess game, you may find that even though that particular course of action is in your best interest the other persons involved may hinder its success by pursuing actions that are in their best interest. So the question becomes "What can I do to achieve the best result for myself considering the interests and potential actions of the other persons involved." This is a sort of simplified idea of what game theory deals with.

Do you think you could explain what it is that you did not understand about the wiki article on the subject?

3. Oct 24, 2009

BobG

In a world of perfectly logical people, what strategy in some given situation would provide the best overall results for a single player? For all the players involved (your equilibrium)?

The problem with game theory is the perfectly logical part. Figuring out the likelihood of players making mistakes and figuring out inherent player bias and irrationalities makes it a lot more challenging.

For example, two people get to share a sum of money. One person decides how to divide it up - the other either accepts the division or rejects it. If he rejects it, neither get any money. The logical result is for the person dividing the money to give his partner 1\$ and keep the rest. Empirically, that never works since humans have an innate sense of fairness/unfairness that will cause them to take a poor result (no money) instead of an unfair result (the divider keeps an obscene share of the money).