Why You Should Care About Game Theory

It can provide the best choices in everyday decision making.
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It can provide the best choices in everyday decision making.
(Photo: fernandoprats/Flickr)

(Photo: fernandoprats/Flickr)

It seems that we're only now coming to terms with the new reality that technology has wrought. And while there's plenty to debate regarding the pros and cons, the one thing that cannot be argued is that there's just more. More movies, music, books, apps, articles, independent restaurants, hipster eateries. And, as is the case whenever there's more quantity, a smaller percentage of it registers as quality. As director Jason Woliner put it, it's a “waterfall of garbage,” and, more often than not, we're drowning.

But there is a way to navigate this new era of Too Many Choices. The answers can be found in game theory.


Despite a heady term that calls to mind algebraic equations requiring chalkboard walls that lift up to reveal entire second sets of chalkboard walls, game theory's a relatively easy concept: It's using math, rather than your intuition, to make decisions. It's Moneyball, not just peering from a distance and saying, “Looks like an athlete to me.”

“From the outside it seems bizarre that a Congressional bill about water will contain a rider about prostitution or birth control, but once you recognize that what's taking place is multi-issue bargaining and it's advantageous to the parties, it makes sense."

Game theory's roots go back to the 1700s, but it wasn't until John von Neumann and Oskar Morgenstern met at Princeton and co-wrote the 1944 paper "Theory of Games and Economic Behavior" that it became what it is today. Among their findings was that the best strategy in a “zero-sum game”—that is, when the winner of the contest gets everything—isn't to maximize gains, but instead to minimize losses. Using the concept, von Neumann developed the infamous nuclear proliferation strategy of Mutually Assured Destruction, perfectly abbreviated to MAD, and pushed for the expansion of arms in retaliation to Russia's proliferation. The “winner” of the nuclear apocalypse, then, would be left with a smoldering carcass of a planet, making the game far less compelling to play. The other two famed examples of game theory-driven thought exercises are The Monty Hall Problem and The Prisoner's Dilemma. You can read about the former and all of its complexities here, but for sanity's sake, I'm sticking to the latter.

The Prisoner's Dilemma: You and your partner are caught by police and separated into two interrogation rooms. You can remain silent or confess. However, your decision isn't the only one to consider, as your partner's also deciding whether to keep mum or spill the beans. There are four possible outcomes:

  1. If both you and your partner stay silent, you each serve one year in prison.
  2. If you both confess, you each get three years.
  3. If you confess and your partner remains silent, you'll walk and your partner serves 10 years.
  4. If you stay silent and your partner confesses, they'll walk and you'll get the decade behind bars.

Which do you choose?

To find out the best course of action, you must break down the best and worst cases for each of your choices, independent of your partner's. Stay silent, and you'll serve either one or 10 years in jail. Confess, and you'll either walk or serve three years. By choosing silence, you'll always wind up in jail, maybe even with the worst penalty. If you confess, you'll have to serve, at worst, a modest jail term, while, at best, you'll walk away scot-free. Numbers say you should confess, no matter how many times your partner has detailed the importance of omerta. The lesson: Work in your own self interest, because that's certainly what the other person's doing.


How does all of this translate to making our lives in the post-“waterfall of garbage” era easier? Let's start with something simple. What will you be having for dinner?

An interactive game theory-related graphic by BuiltVisible provides an example. Let's say you have two choices: nachos, which you'd rate a five on the “quality” scale, or sushi, which you'd rate a 10. However, you've eaten at the sushi place three times, and twice fallen ill. Meanwhile, nachos are consistently nachos. Using simple algebra, then, you have a 33 percent chance of a 10-point experience or a 100 percent chance of a five-point experience. Crunching the numbers—showing my work: 100 percent of five is five, 33 percent of 10 is 3.3, and thusly five > 3.3—game theory says to go with the nachos. Intuitively, this is the idea that von Neumann detailed: Don't worry about maximizing gains as much as minimizing losses.

This applies to all sorts of everyday decisions: Rather than seeing a movie based on advertising campaigns or slick trailers—both of which are implicitly designed to play on our emotions—use cold, hard facts. While movie review site aggregators like Rotten Tomatoes and Metacritic do the hard part for us, we all know that movies—or television shows, or books, or concerts, or really any entertainment—are subjective experiences. Rather than just going by the reviews, grade the possibilities on your own. How did you like the director's previous films? How excited are you by the genre? Did the cinematography in the trailer suggest that a theater viewing would be necessary? This questionnaire can be edited based on your own preferences. Answer the questions, crunch the numbers, and you've found your decision.

Game theory also helps with bargaining. Instead of going to one car dealer and haggling about the price, research a bunch of dealers first to see what the car you want is going for. Inform the dealer about what you've found and what you're willing to spend. They'll have no real room for negotiation. This is the concept of “commitment.”

“There is sometimes a huge strategic advantage to making a credible commitment,” says Rakesh Vohra, an economics professor at the University of Pennsylvania and member of the Game Theory Society. While a firm offer ties your hand to the price—and no longer puts you in a position to get a “bargain”—it simplifies the situation. You're not going to get the car for less than what it's worth because a seller isn't going to take a loss. By letting the seller know your price, you're dictating the terms and speeding up the negotiation. “If [the seller] believes I'm going to do x no matter what happens, [they're] forced into the position of thinking how to respond to x,” Vohra says. “[They're] no longer in a position to influence me, because I have already committed myself.”

Game theory also recommends multi-issue negotiations, rather than working out each one separately. “I'm willing to give up on this issue in return of you giving up on some other issue that's more important to me,” Vohra says. In other words, don't feel weird about trying to get the dealer to throw in some extras along with the car. This is, after all, the same way that our world leaders work out their differences. “From the outside it seems bizarre that a Congressional bill about water will contain a rider about prostitution or birth control," he says, "but once you recognize that what's taking place is multi-issue bargaining and it's advantageous to the parties, it makes sense."


That said, there are gaps in game theory that are still being worked out. Vohra details the following example: Bob and Alice are walking. A dollar falls from heaven and Bob gets it. Bob can propose any division of the dollar, while Alice can only reject or accept. (If she rejects, the dollars disappears, and no one gets anything.) In experiments, people acting in Bob's role propose a nearly 50/50 split, presumably so Alice will accept the division. However, it makes sense for Alice to accept any proposal where she gets at least one cent, seeing as she'll get nothing if she doesn't. Bob, according to game theory, should be proposing a 99/1 split every time.

“Now, I'm going to give you the same situation but change the context,” Vohra says. “Bob is in possession of a book Alice is willing to pay up to a dollar for. What price should Bob set?” In this case, clearly, Bob should price the book at 99 cents. “It is exactly the same situation except I changed the labels. But the labels make a difference. This is something we still don't understand.”

One fascinating study into label usage was performed by Uri Gneezy, a professor of economics and strategy at the University of California-San Diego. He looked at an Israeli daycare that was having problems with parents coming late to pick up their kids. First, they scolded the parents. When that didn't work, they introduced a fine system: Show up 15 minutes late, pay extra money. However, the results backfired. After the fine's institution, more parents ended up showing up late. The fine was seen as just the price of longer daycare.

“Assuming incentives work in a simplistic way is wrong,” Gneezy says. “Once you introduce incentives, you introduce many other things, very often without knowing you're doing this.” It's not a mistake of the parents to react to the incentives in ways that weren't intended. “It's the people making the incentives that are making the mistakes.”

Gneezy came to study the daycare through his own experience. He was living in Tel Aviv at the time and picking up his daughters at the daycare. When the fine was instituted, he was less likely to pick up his daughters on time. He noticed his own behavior, tested it, and figured out why he was acting that way.

“If you want to understand game theory, you need to understand how people behave,” Gneezy says. “Start with yourself.”

When making decisions, however seemingly innocuous, crunch the numbers and go with your brain. Going with your gut often leads to regret and, more often than not, indigestion.

The Sociological Imagination is a regular Pacific Standard column exploring the bizarre side of the everyday encounters and behaviors that society rarely questions.