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October 25, 2014

Game theory? You do the Math


Game Theory ExampleThe branch of applied mathematics known as Game theory is used in many fields, including:

  • Economics
  • Engineering
  • The Natural World and Ecology
  • Political Science
  • Biology
  • Evolutionary Theory
  • Computing
  • Psychology
  • Philosophical Theories
  • Human Resources Management and Engineering

Game theory uses math in a given environment to capture and sometimes even predict the behavior of the variables in that environment. Such variables may include people or animals. The success or failure of individuals in a given environment may be reliant on the action of others. The strategies employed by individuals in such environments are of central importance in game theory. Game theory is conventionally about balance. The natural world – for example – is at its best when there is a certain equilibrium. For example, if trawlers are over-fishing, they may reduce the populations of more than one species of fish. The predator of the cod or the salmon will go hungry if that fish cannot find cod or salmon. The positive feedback loop that results is a disaster for an entire ecological zone of the sea.

Man has been the cause of many ecological disasters. It has been said that we are living in a time where species are going extinct with the profligacy seen during one of the extinction events that pre-date mankind, such as when the dinosaurs were wiped out. When it comes to manmade natural disasters, let’s take a sewerage leak as an example. If a spillage of sewage into a lake or river occurs – whether by accident or design – there may be certain species of fungus or algae that thrive, starving the water of oxygen or sunlight or both. This means that flora and fauna in this environment can no longer exist.

For other species of fish and creatures living on the riverbank, dependent on those creatures that live in the water, it can be disastrous. As the fish die off and the ecosystem as it was is destroyed, there is an explosion of life in the algae population. Thus, the algae temporarily “profit” and thrive while their fellow water creatures are wiped out. However, the algae themselves may only thrive for a limited time, as they require other resources to exist. Much as a cancer can destroy the body that inhabits it, the algae can destroy themselves in spite of temporarily thriving.

The same principle applies in many gambling environments. You need to know when you have maximized your profits before getting out of the game. If you stay too long in a game, you risk losing everything that you have won in that game. If you get out while you are on top, you can be guaranteed to have played to the best of your ability. Gambling is about risk, and games involve taking chances. But if you use clever strategies to exploit the weaknesses of your opponents, you will likely thrive in a gambling environment. Certain aspects of game theory can be used to analyze behaviors so that a good guess is not just good, but educated and informed in such a way as to be as foolproof as possible.


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