Game Theory - continued..

Continued with the Game Theory class from yesterday.

Lesson 4:-

• Penalty kick game – which is the best strategy to shoot, to middle, left or right.
• Middle is not best response to any belief.
• “Do not choose a strategy that is never a Best Response to any belief”
• Partnership game (50-50 partnership, effort put in vs return; two people sharing a room, who will cleanup)
• “Inefficiently low effort, because at the margin I only capture ½ the benefit I put in, but I absorb all the cost of the effort”
• Players play best response to each other – iteratively removes the best responses
• Reaches “Nash equilibrium”
• I wonder in scenarios like this, who will put in effort without regard to the return (returns will go to the other person also, but effort only from one). Unless there are people who put in effort without regard to the result, will the world reach Nash equilibrium? Is this what is happening to scenarios like global warming (everyone putting least effort needed since others are not doing it) and similar scenarios where morality causes someone to put in effort and suffer for benefit of others?
• Nash equilibrium vs just doing the work without expecting results
• I listened to Adam Grant about Givers and Takers. I wonder if someone evaluated the effect of Nash equilibrium in an organization where there is an imbalance of Givers vs Takers or will that go to the equilibrium when Givers will leave the organization frustrated about someone is taking advantage of them until there is an equilibrium.

Lesson 5:-

• At Nash equilibrium, there are no regrets for the players – they put just the right amount of effort which yielded results and didn’t end up putting less effort (regret they did less) or more effort (regret others are getting benefit).
• Self fulfilling beliefs - because I will play my best response thinking everyone else is going to their part.
• Nash equilibrium is a different social problem than that of prisoner’s dilemma – in prisoner’s dilemma, there was no enforcing contract, so everyone will play the dominant strategy as their best response. But in Nash equilibrium, Coordination/Communication can help.
• Investment Game – only if 90% of players invest, everyone benefits. But in examples, people abstain thinking getting 90% is not going to happen (trust, risk aversion). If you play this multiple times, result will converge to an equilibrium. Bank run (many people losing trust in a bank and wanting to withdraw at the same time) is an example.
• Nash equilibrium can be self enforcing agreement.