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Game Theory attempts to define these situations in mathematical terms and determine what would happen if every player acts rationally. Maybe an equilibrium can be reached which is why we all drive on the same side of the road within a country. Maybe this equilibrium will be worse for all players or maybe everyone will try to be as unpredictable as possible in their actions. In some way Game Theory, it's a way to mathematically model complex human behavior, to try to understand it and predict it. a game is any situation in which there are several decision-makers, and each of them wants to optimize their results. The optimizing decision will depend on the decisions of the others.
Game Theory has many applications, it can help the police determine how to interrogate suspects, can be used to explain things such as why stores that sell the same items tend to open in the same area, or why the Cold War nuclear crisis happened. Some strategist also uses Game Theory model to find out what actions should be taken to lead the company.
Game Theory as a Tool for the Analysis of International Relations
One of the basic assumptions of a realist approach to international relations is that states are motivated only by their own interests. This school of thought emphasizing that the state considers the needs and interests of other nation-states only when other nation-states have ability enforce their demands by threatening or commit destructive actions. This means that the state is not guided by ethics or humanitarian considerations, and international law. Therefore, it achieves their interest, state use Game Theory as a tool to analyze any options and outcome to achieve their interest and one of the simplest models is prisoner dilemma.
Prisoner dilemma can be explained like this:
If Alpha and Bravo both betray the other, each of them serves 2 years in prison. If Alpha betrays Bravo but Bravo remains silent, Alpha will be set free and Bravo will serve 3 years in prison. If Alpha and Bravo both remain silent, both of them will only serve 1 year in prison. That mean the most favorable option for both Alpha and Bravo is to remain silent, but booth of them is suspicious that the other will snitch on them. Therefore, they end up neglecting the rational choice in this case remaining silent and end up with more prison time.
Other example of Game Theory is used to present a mathematical model of cooperation vs conflict:
We have USA and North Korea. USA has two options Attack and do not attack. North Korea has two options build a nuclear missile and stop building a nuclear missile. We assign values to each supposed play and before the nuclear agreement the status quo was. USA will not attack; North Korea is still working on its nuclear missile. Therefore, we would assign values that reflect each of these choices for both sides. If both sides choose their respective option regardless of the other's choice, both players are playing their optimal choice.
We can also use Game Theory analysis in economic field such as:
Consider two Company, Airbus and Boeing, selling similar airplane class. Each must decide on a pricing strategy they best exploit their joint market power when both charge a high price, each makes a profit of nine million dollars per month. If one sets a competitive low price it wins a lot of customers away from the rival. Suppose its profit rises to eleven million dollars and that of the rival falls to eight million. If both set low prices the profit of each is ten million dollars. Here the low-price strategy is akin to the prisoner confession, and the high price akin to keeping silent. Call the former cheating, and the latter cooperation. Then cheating is each Company dominant strategy, but the result when both cheats is worse for each than that of both cooperating.
As we can see Game Theory is the adapting to someone behavior. Its broadness makes it applicable to all kinds of situations, from relationships to job hunting to evolution to urban planning to financial trading algorithms to politics to war. If you combine the power of this tool with the capacity of computers to carry out calculations and the amount of data, we have available, Game Theory can easily become one of the strongest fields in the following decades. It can describe the interactions between states, the financial markets or even used to present a mathematical model of cooperation vs conflict in international scale.
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