As a math geek, I have a particular fascination with game theory. Lest the word “theory” through you for a loop, keep in mind that game theory has a number of practical applications. In general, it’s useful in life to be able to think about how others are going to respond to the choices that you make, since these responses in part dictate what choices are best for you to make in the first place.
To illustrate this concept of strategic interaction, I give you a couple of videos. The first goes through the typical prisoners’ dilemma setup, and the second gives an example of a second type of game that has a lot of instances in the real world.
I swear I have an entertaining point here, but it requires this sort of game theory knowledge. So just bear with me…
Ok then. Now that we’re up to speed…you may have noticed that game theory is a bit out of order in the context of the production of my Econ 101 videos. So what brought this on? Well…The Economist reminded me of a particularly intriguing British game show called Golden Balls (not to be confused with David Beckham). I had previously thought that my fascination with British television was limited to Monty Python, AbFab, The Office and Trinny and Susannah’s version of What Not to Wear, but apparently I was mistaken. The show has a number of different games, but the most economically interesting is the “Split or Steal” segment, since it’s essentially a slight variation on the prisoners’ dilemma. See for yourself:
You can see another example here, or you can see related videos directly through YouTube. (You now have a little window into the world of how I entertain myself in my free time.) Some questions for you:
- How is this similar to the prisoners’ dilemma setup? How is it different?
- Are the players’ choices an equilibrium set of strategies? Why or why not?
- What would you do if you were playing this game?
I will follow up with some discussion in a couple of days (to give everyone a chance to ponder if they so choose). I will also work on a new tag line having to do with economists liking golden balls. =P