Game Theory use math to understand how individuals act strategically, where their success depends on the choices made by themselves and others. Game theory can exists in any part of our life, not just only in the economic world. It can be applied when we are playing games (Command and Conquer :D ) against our friends etc...
But anyway I will be analysing Game Theory in the economic world. How to apply it in the real world?
In class, Kean and I made a really simple yet stupid Game Theory. The format was similar to the 'Split or Steal game'. If one choose split and one choose steal, the person who choose steal may slap his/her opponent 3 times. If both split, 1 slap for both, if both steal, 2 slap for both.
So how does this theory apply in the real world? A common practise of game theory exist in negotiation. One must minimize the risk, and make the first offer, beware of precedence, have credibility, maintain continuity, and have a relationship with the partner being negotiated with. It is probably a good choice if you choose the safer way for a better outcome, but it may varied depend on the progress of negotiation.
Another great activity that may require good game theory skills, is auctions. As the buyer, you always want the highest bid - trues, but not always the case. However, the highest bid does not pay the highest bid price, he pays the second highest bid price. This creates an incentive for participants to bid higher but they often spend more than they would like on the asset.
You are forcing your opponent to spend more money, over their budget zone, thus winning the game.
But anyway I will be analysing Game Theory in the economic world. How to apply it in the real world?
In class, Kean and I made a really simple yet stupid Game Theory. The format was similar to the 'Split or Steal game'. If one choose split and one choose steal, the person who choose steal may slap his/her opponent 3 times. If both split, 1 slap for both, if both steal, 2 slap for both.
So how does this theory apply in the real world? A common practise of game theory exist in negotiation. One must minimize the risk, and make the first offer, beware of precedence, have credibility, maintain continuity, and have a relationship with the partner being negotiated with. It is probably a good choice if you choose the safer way for a better outcome, but it may varied depend on the progress of negotiation.
Another great activity that may require good game theory skills, is auctions. As the buyer, you always want the highest bid - trues, but not always the case. However, the highest bid does not pay the highest bid price, he pays the second highest bid price. This creates an incentive for participants to bid higher but they often spend more than they would like on the asset.
You are forcing your opponent to spend more money, over their budget zone, thus winning the game.
Even in simple game, game theory is also used widely by 'better' players, yes there is some luck in this game, but there are skills too ;)