We all have our personal reasons for our choices. We choose according to the situation or what we think is right for us and sometimes for others too. The aim of doing is what is best for yourself. In economic terms, you are “best-responding” to other people’s actions in a purely individual and self-interested way.
What is Game theory?
Game theory is the mathematical study of strategic decision making. It is used to find the optimal outcome from a set of choices by analyzing the costs and benefits to each independent party as they compete with each other. According to game theory, One always lose, and another player always wins.
Let’s check some relevant examples of game theory used in everyday life.
We all have played the game chess once or more in our life. It depends upon the players, how they use the moves to win the game. The rules of the game are known to both the players and have remained unchanged which makes it a game of perfect information. So, chess is an example of game theory as both players know the possible moves and the effects of those moves.
2. War Strategies
India’s muscular riposte to Pakistan’s perfidy post-Uri, post-Pulwama has underpinnings in game theory. After the jihadi attack on the Uri army camp in 2016, India launched its “surgical strike.” This year, after a suicide bomber rammed a Central Reserve Police Force convoy and killed 40 jawans, the Indian Air Force struck a terrorist camp in Balakot deep inside Pakistan, in Khyber Pakhtunkhwa province. These war strategies and military decisions are examples of game theory. In general, the military head or commander select the course of action which offers the most significant promise of success in view of the enemy’s capabilities of opposing him.
3. Rock, Paper and Scissor Game
Have you ever got into disputes with your friend and you couldn’t decide who is right or wrong? Then the game rock, paper, and scissors remain the only option and the one who wins; wins the dispute. In this game like chess, we know the consequences but are not aware of another player is going to do.
4. Poker Card Game
Most of us have seen people losing huge amount of money in poker clubs in movies as well as in real. Poker card game exemplifies the game theory correctly because one wins exactly the amount one’s opponents lose.
Humans usually imitate other people in living and survival. Evolution is a popular application of game theory; for example, people follow the trends and strategies for survival. Survival not only depends upon fitness but instead also depends upon evaluating how others in the same community are faring based on their actions. Because of this, it is important to figure out how certain survival strategies come to be adopted.
6. Market Shares and Stockholders
By investing in the stock market, you become a player. You have invested your money in a company knowing that you will either make money or lose money, but you don’t know what will happen. The company needs your investment to thrive. The decisions the company makes will either drive the price of its stock up or down, which determines its future success. The stockholder does not know what decisions the company will make, and the company does not know what decision the stockholder will make.