Thursday, June 14, 2012

Game Theory, the Prisoner's Dilemma, & Split or Steal

As of right now, at exactly 9:24 going on 25, I'm actually a bit ticked at economics, because the problem sets from the book are so darn hard. Can't something make sense? And it ticks me off, because it's so hard, I get those feelings of inferiority that I don't know how to do it, when I know how to do it, and then I'm confused about how to do it. There's only one word left to say about this; it's a FAIL. I hate problem sets.

Anyways, I wanted to talk about microeconomics, not really, I just want to share some cool videos from Youtube. But since Game Theory is so darn fascinating and the Prisoner's Dilemma has driven me crazy, it gives me some relief to know it will drive yall crazy. Consider this yall's warning. Venture forth with bravery and honor your own risk. (LOL, eventuallly it will make some sense)

A Game, in its simplest form, is an interaction between individuals that has stable players, choices, and payoffs. It assumes that the interactions are continuous, that all players have perfect information, and that all players are rational (do what's in our best interest)

Game theory is economic reasoning applied to situations where decisions are interdependent
Strategic thinking is decisions of others play a role in our own decisions as a result of interdependency

Here is the Prisoner's Dilemma:

Here are my thoughts (hope they don't confuse you all that much!):
 It is in their best intereset to confess if they know the other person is not going to confess. Thus confessing is the RATIONAL thing to do for each prisoner,. However, if they both don't confess that is the best combined outcome for both of them, but each MUST assume the other will act in his best interest, so they both confess. Basically, instead of following the Code of Silence and doing what's in the best interest of the whole group (because not confessing helps them both jointly), they will reach the END GAME SOLUTION as soon as one person expect the other person to defect (in this cases confesses or doesn't cooperate with the other person), he will defects and cooperation between the two ends.

And now Notes from the Notebook:
It is in each prisoner's best interest no matter what the other one does. Despite the fact that they would both be better off if they both don't talk, because of incentives, they both talk.
This is known as Dominant Strategy--prefered strategy indifferent to other person's decision
In this PD, each prisoner MUST assume that the other will act in his best interest.
Tit-for-Tat strategy says that everybody should not trust one another, each individual cooperates with other perosn until they're given a reason not to, thus they mirror the other prisoner's play and defect
The End Game Solution is where both prisoner's confess, is known as the NASH EQUILIBRIUM--where each prisoner chooses what's best for them dependent on what other person will do.
If there is no dominant strategy look for what opponent is going to do and do what's best for you based on that (known as dominative strategy).

This brings us to a game show called Split or Steal (or maybe it's called Golden Balls, but call it chicken salad always works too:) It works something likes this or that.


It is in each player's best interest to steal if they know the other person is going to split. However, if they know that the other person is going to steal, they should also steal. This is a game based off trust. If you trust, you both end up splitting and everyone's happy. If you both steal, well at least you don't feel cheated and you don't lose anything. If, however, someone steals and someone splits, the person who splits gets nothing. So splitting really is a trust thing. Also, if you steal and they split everyone on Youtube will think you're a terrible person. But you're really not, because if you don't know if you can trust the person, you're best choice is to steal. In fact, just in general it's best to steal. The real choice isn't even  JUST split or steal? It's IF the other person splits, what do you do? What would you do? Do you trust or not trust?

And now I have some videos from Youtube (yay for getting through all that):

Try and guess who will split and who will steal!

This is the one my teacher showed us in class and gave us a "quiz" over (basically we didn't get points for it, he just said it was a quiz to get us to pay attention):

But I liked this one better: (isn't that just awesome! Wouldn't you scream and jump for joy like that if it was you?)

And I thought this one  was pretty awesome too:

I feel like this one best shows game theory:

And this one really is "the weirdest split or steal ever"

That's all I got. Probably amount to 3 pages if I were to copy, paste it into word document. But hope you enjoyed this lesson on microeconomics, although it might not solve all your trust problems!