EXPLORING
YOUR OPTIONS
GAMES AND ECONOMIC
(AND SOCIAL) BEHAVIOUR
Professor Simon Grant
What is Game Theory?
Branch of applied mathematics
Method of studying strategic situations.
outcomes depend on your actions
AND actions of others.
contrast with (perfect) competition & monopoly
c.f. imperfect competition
Not just used in economics but also:
politics, law, sociology, biology, and of course
SPORT!
Simon Grant (University of Queensland)
Games and economic (& social) behaviour
Economics Schools Day
2 / 14
The Prize Fight in “Take It All!”
Imagine you and one other contestant have made it through to the
‘Prize Fight’ (final) round of Howie Mandel’s game show “Take it all”.
Each of you currently has amassed $100,000 worth of cash & prizes.
1
Write your name in the first line of the box on your form.
2
Without showing your neighbour what you are doing,
you will write in the second line of the box on your form either
“TIA” or “KM”.
Your form will be randomly paired with another form.
Simon Grant (University of Queensland)
Games and economic (& social) behaviour
Economics Schools Day
3 / 14
The Prize Fight in “Take It All!”
If you write “TIA”and your pair writes “KM”,
then not only will you get to keep your cash & prizes
but you will also get your pair’s cash & prizes as well.
If you and your pair both put “TIA”,
then you will both lose your cash & prizes.
If you put “KM”and your pair puts “TIA”,
then your pair keeps their cash & prizes as well as geting yours.
If you and your pair both put “KM”,
then you will both get to keep your cash & prizes.
Simon Grant (University of Queensland)
Games and economic (& social) behaviour
Economics Schools Day
4 / 14
NBC’s Take It All ran for 6 nights: 10-14 & 17 Dec. 2012.
Night 1 (“TIA”, “KM”) : In their final discussion, John insists his life is
Night 2
Night 3
Night 4
Night 6
all about truth, but Kim doesn’t believe him.
She votes to Take It All and wins $275,000 in cash in addition to
her and John’s prizes, making her grand total $420,900!
(“TIA”, “TIA”) : Even though both contestants agree that they
have no need to be greedy, they both vote to Take It All
(“KM”, “KM”) : Both guys get emotional about their mutual
desire to help their families while discussing their decisions.
In the end, both guys choose “Keep Mine”
— a real BROMANCE MOMENT!
(“TIA”, “KM”) : Although both contestants agree to keep the
prizes they have, only Jeremy votes to Take It All, walking o§ with
a whopping $549,500 in cash & prizes leaving Lauren with nada!
(“TIA”, “KM”) : Amber doubts Anita’s tears and promise that
she just wants to take her prizes home. Nevertheless, Amber
chooses to keep her prizes as a matter of principle, leaving Anita
to Take It All - $554,300 in cash and prizes!
Simon Grant (University of Queensland)
Games and economic (& social) behaviour
Economics Schools Day
5 / 14
Organising the information
you
your pair
“TIA” “KM”
“TIA” 100
100
“KM” 100
0
your gain in Prize Fight
Combining:
you
“TIA”
“KM”
Simon Grant (University of Queensland)
you
your pair
“TIA” “KM”
“TIA” 100
100
“KM” 100
0
pair’s gain in Prize Fight
your pair
“TIA”
“KM”
(100, 100) (100, 100)
(100, 100)
(0, 0)
Games and economic (& social) behaviour
Economics Schools Day
6 / 14
Possible Payo§s
For the strategic setting:
you
“TIA”
“KM”
your pair
“TIA”
“KM”
(100, 100) (100, 100)
(100, 100)
(0, 0)
suppose payo§s are:
your pair
“TIA”
“KM”
100
200
you “TIA”
100
200
200
0
“KM”
200
0
Interpretation: “care about your own winnings/losses in Prize Fight
and whether they came at the expense/benefit of your pair”
Technical Term: Evil Gits
Simon Grant (University of Queensland)
Games and economic (& social) behaviour
Economics Schools Day
7 / 14
Dominant and Dominated Strategies
Definition
We say your strategy “TIA” strictly dominates your strategy “KM”
if your payo§ from “TIA” is greater than that from “KM”
regardless of your pair’s actions.
Lesson 1: Do not play a strictly dominated strategy.
Lesson 2: Dominant strategy choice can lead to outcomes that suck!
Simon Grant (University of Queensland)
Games and economic (& social) behaviour
Economics Schools Day
8 / 14
What is this game?
A. Prisoner’s dilemma
prisoner 1
Confess
Deny
Simon Grant (University of Queensland)
prisoner 2
Confess
Deny
2
5
2
0
0
1
5
1
Games and economic (& social) behaviour
Economics Schools Day
9 / 14
Other possible payo§s
Recall our strategic setting:
you
“TIA”
“KM”
your pair
“TIA”
“KM”
(100, 100) (100, 100)
(100, 100)
(0, 0)
Suppose both players are altruists with payo§s given by:
your pair
“TIA”
“KM”
200
0
you “TIA”
200
0
0
0
“KM”
0
0
Now, strategy “KM” weakly dominates strategy “TIA”
Lesson 3: Can’t get what you want until you know what you want.
Simon Grant (University of Queensland)
Games and economic (& social) behaviour
Economics Schools Day
10 / 14
Indignant Angels
For the strategic setting:
you
“TIA”
“KM”
your pair
“TIA”
“KM”
(100, 100) (100, 100)
(100, 100)
(0, 0)
Suppose both players are “indignant angels”.
Like altruist, care about your own and your pair’s payo§.
But, feel guilt if your action leads you to get better prize,
And feel indignation if pair’s action leads you to get worse prize!
you
“TIA”
“KM”
Simon Grant (University of Queensland)
your pair
“TIA”
“KM”
100
200
100
50
50
0
200
0
Games and economic (& social) behaviour
Economics Schools Day
11 / 14
Evil Git versus Indignant Angel
you
“TIA”
“KM”
your pair
“TIA”
“KM”
(100, 100) (100, 100)
(100, 100)
(0, 0)
Suppose you are an ‘evil git’ paired with an ‘indignant angel’.
you
“TIA”
“KM”
Simon Grant (University of Queensland)
your pair
“TIA”
“KM”
100
200
100
200
50
0
200
0
Games and economic (& social) behaviour
Economics Schools Day
12 / 14
Indignant Angel versus Evil Git
you
“TIA”
“KM”
your pair
“TIA”
“KM”
(100, 100) (100, 100)
(100, 100)
(0, 0)
Suppose you are an ‘indignant angel’ paired with an ‘evil git’.
you
“TIA”
“KM”
your pair
“TIA”
“KM”
100
200
100
50
200
0
200
0
Lesson 4: Put yourself in other’s shoes
and try to figure out what they will do.
Simon Grant (University of Queensland)
Games and economic (& social) behaviour
Economics Schools Day
13 / 14
Recapping Lessons
Lesson 1: Do not play a strictly dominated strategy.
Lesson 2: Dominant strategy choice can lead to outcomes that suck!
Lesson 3: Can’t get what you want until you know what you want.
Lesson 4: Put yourself in other’s shoes and try to figure out what they
will do.
Simon Grant (University of Queensland)
Games and economic (& social) behaviour
Economics Schools Day
14 / 14
QUESTIONS AND COMMENTS
Thank you!
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UQ SCHOOLS DAY!
If you have any questions about
studying economics at UQ, visit
www.uq.edu.au/economics