How Do i Choose Between 2 Options: Game Theory
Life comes with many situations where you see many options and have to decide. Situations where the decision can change your life in a irreversible manner.
Or some decisions when each option seems to be equally good and it is literally impossible to decide what is right. Here comes the role of Game Theory. Game Theory Helps you decide how to choose between 2 options.
When ever there are 2 or more competitors it is defined as game. Now in decisions it will always be, that if the other person or the competitor takes a decision it definitely impacts you.
Therefore almost all decisions are a part of a game. For example, in a war, the decision to be offensive or defensive, is part of the game of war where the enemy country is your competitor.
The Road Not TakenTwo roads diverged in a yellow wood,And sorry I could not travel bothAnd be one traveler, long I stoodAnd looked down one as far as I couldTo where it bent in the undergrowth;Then took the other, as just as fair,And having perhaps the better claim,Because it was grassy and wanted wear;Though as for that the passing thereHad worn them really about the same,And both that morning equally layIn leaves no step had trodden black.Oh, I kept the first for another day!Yet knowing how way leads on to way,I doubted if I should ever come back.I shall be telling this with a sighSomewhere ages and ages hence:Two roads diverged in a wood, and I—I took the one less traveled by,And that has made all the difference-Robert Frost
Now let’s come to the point of how to take the decision. Payout is another important term to know in game theory, which is equal to the outcome of the decision any player takes in a game.
Now the thing that matters the most is Nash Equilibrium. Nash Equilibrium is a scenario where as a result of your decision, no one can increase there payout by taking unilateral decisions. In such a scenario, all players have there payouts dependent over your decision.
this usually occurs in games with more complex elements than two choices by two players. In simultaneous games that are repeated over time, one of these multiple equilibria is reached after some trial and error.
One of the major examples of such a situation where the maximum payoff is limited by your decision is a situation which is coined with name Prisoners Dilemma.
Imagine a situation where 2 suspects are jailed. In order to investigate, Police puts up 4 conditions
- If both confess, they will each receive a five-year prison sentence.
- If Prisoner 1 confesses, but Prisoner 2 does not, Prisoner 1 will get three years and Prisoner 2 will get nine years.
- If Prisoner 2 confesses, but Prisoner 1 does not, Prisoner 1 will get 10 years, and Prisoner 2 will get two years.
- If neither confesses, each will serve two years in prison.
Now the Nash Equilibrium for Prisoner 1 would be the scenario where he receives the least punishment. He has the option to either confess or stay silent. The decision of 2nd Prisoner is not known to him.
The most favorable strategy is to not confess. However, neither is aware of the other’s strategy and without certainty that one will not confess, both will likely confess and receive a five-year prison sentence. The Nash equilibrium suggests that in a prisoner’s dilemma, both players will make the move that is best for them individually but worse for them collectively.
May be the luck may favor you to be fully free. But it is highly dependent on decision of other person. If we achieve Nash Equilibrium, we will always have more layoff than our competitor.
It is something like Russia and America controversy, where both are simply continuing the game. Here the way to succeed is by not taking a different decision, here you have to change the game, you have to bend the rules in a way that only you leverage the game.
There is another type of game also. It is called infinite game, a game with indefinite players, indefinite rules and the only objective is to continue the game forward, on and on and on…
It is something like Russia and America controversy, where both are simply continuing the game. Here the way to succeer is by not taking a different decision, here you have to change the game, you have to bend the rules in a way that only you leverage the game.
Itwill be explained in the following example.”Every once in a while a revolutionary product comes that changes everything, not judt the product bht the entire industry. We have been fortunate to be part of few of them. When we launched iPod, it did not change the way we listen music it changed the whole industry” -Steve Jobs
Steve Jobs said these words at the launch event of the iPhone. iPhone was the next big thing that changed the industry.
With iPhone they didn’t improve the industry they changed the way we thought about phones, and changed whole industry.
Hereit was a indefinite game, the rules were not there, and the objective was just to continue game, goal was to gain maximum market share, Apple was a new player in the game. Here Apple didn’t took a decision like in finite game where a decisiongives you leverage. They didn’t take decision to add more battery, or more vibrant display, they changed the game.
Theychanged the way we used them, rather than buttons there was touch screen. It was something no one thought, and it was something that changed the game, it opened hell lot of new possibilities and new apps and web design took birth, that made Apple what it was. It is a different thing that Apple, now under Tim Cook is whole lot different.