Games People Play: Game Theory in Life, Business, and Beyond – Scott P. Stevens, Ph.D.

Ever since modern game theory—the scientific study of interactive, rational decision making—achieved prominence in the mid-20th century, it has proven instrumental in helping us understand how and why we make decisions. Game theory plays a crucial role in our lives and provides startling insights into all endeavors in which humans cooperate or compete, including biology, computer science, politics, agriculture, and, most importantly, economics.

For example, game theory

• has become an invaluable tool for economists, underpinning the theories of five Nobel Prize winners in economics;
• helps corporate decision makers through the alternatives of complex negotiations where thousands of jobs and billions of dollars may be at stake;
• plays a crucial role in international diplomacy and military strategy, influencing the fates of nations even when that influence may well be invisible to the uninitiated; and
• provides insights into the origins of human behaviors, not only for psychologists seeking to understand why we act as we do, but also for evolutionary biologists asking how those patterns of actions—as human strategies—were handed down.

You can even see game theory at work in the interactions you engage in every day, such as an obvious “game,” like buying a car, or a less obvious one, like trying to decide where to go on a Saturday night or how you ought to dress.

A basic working knowledge of this profoundly important tool can help us cut through an often confusing clutter of information—allowing us to make better decisions in our own lives or better understand the decisions facing other players in games. In Games People Play: Game Theory in Life, Business, and Beyond, award-winning Professor Scott P. Stevens of James Madison University has designed a course meant for anyone looking to gain that knowledge. In 24 insightful lectures, he presents you with the fundamentals of game theory in a manner that is both engaging and easy to understand.

Learn the Basic Games on which More Complex Interactions Are Built

Any game can be described as an interaction involving two or more players who share a common knowledge about the game’s structure and make rational decisions about the strategies that will best achieve the maximum possible payoff.

But along the pathways that lead from that basic description to the far more complex games that can be built from it—from billion-dollar negotiations to nuclear confrontations—you find a fascinating collection of questions. Are decisions being made simultaneously, with players not knowing what others are doing? Or are they made sequentially, with each player’s decision following another’s? Are binding agreements between players possible? Is the element of chance involved? Do all players have the same information? As these questions are answered, games can take different forms, and planning a strategy requires basic analytical tools.

Professor Stevens introduces you to those tools by exploring several classic games, each involving two players who can make one of two choices. Translating them into everyday examples, Professor Stevens shows how these games occur everywhere, from casual life to business to international diplomacy:

• Chicken, derived from the game in which two drivers race toward each other to see who will swerve first. This game is one in which neither player wants to yield to the other—even when a “collision” is the worst possible outcome. In science fields such as biology, this game is known as the Hawk-Dove game.
• Stag Hunt, also know as the assurance game. This game involves making a choice between individual safety and risky cooperation. The idea behind this game—involving two hunters who must decide whether to hunt a hare alone or a stag together—was developed by the philosopher Jean-Jacques Rousseau.
• Prisoner’s Dilemma, a famous situation and perhaps the most important in all of game theory. This game involves two prisoners being separately interrogated for their common crime. Each must decide whether to confess or remain silent, knowing his partner has the same choice.

If neither confesses, they each get a one-year sentence. If both confess, each gets three years. And if only one confesses, he goes free, but sends his partner away for five years.

This perplexing game, in which logic points to a strategy for each prisoner that is clearly best, yet nevertheless provides a worse outcome, surfaces repeatedly in the course, as it does in real life.

But as these lectures make clear, that isn’t unusual. For the ideas that underlie game theory are everywhere, their practical applications appearing repeatedly:

• You see game theory at work in business, explaining the moves in the billion-dollar chess game between Boeing and Airbus over control of the market for medium-sized, medium-range jets.
• And you see it used in war, exploring the choices that faced U.S. and Japanese commanders as each side decided how best to deploy its weapons: the waiting force of U.S. bombers and the Japanese convoy that knew it was the bombers’ target.

Meet Game Theory’s Most Important Minds

Just as these lectures introduce you to game theory’s most important ideas, they also introduce you to many of its most important minds:

• John von Neumann, whose 1944 book Theory of Games and Economic Behavior, written with Oscar Morgenstern, made him arguably the founding father of modern game theory
• John Nash, whose story was told in the film A Beautiful Mind and whose achievements have helped make him one of the best-known game theorists
• Kenneth Arrow, whose famous “impossibility theory” proved that designing a fundamentally unflawed voting system is essentially impossible
• Barry Nalebuff and Adam Brandenberger, whose 1996 book on Co-Opetition offered modern business an innovative rethinking of the competitiveness.

Focus on Game Theory’s Basic Ideas

While game theory is rooted in mathematics, this course requires nothing more than a basic understanding of how numbers operate and interact. Each lecture in Games People Play features visually rich graphics that help you grasp the simple mathematical ideas underlying this fascinating field of study. Despite the apparent complexity of game theory, Professor Stevens always makes the subject matter accessible and easy to understand.

Taught with relish and wit by a teacher as amiable and easy to understand as he is knowledgeable, Games People Play instills a new awareness of the games hidden at the core of the most complex arenas of corporate negotiations and foreign policy, as well as the most basic encounters of our daily lives.

24 Lectures

Average 31 minutes each

1. The World of Game Theory

“Games” apply to all aspects of life; almost any structured interplay among people constitutes a game. You’re introduced to the subject with a perplexing dilemma, a brief history of the field, and some of its applications, and the three fundamental components of any game: players, strategies, and payoffs.

2. The Nature of the Game

You gain a deeper insight into the essential building blocks of players, strategies, and payoffs—most of them more complex and subtle than they might appear—along with two new concepts, rationality and common sense.

3. The Real-Life Chessboard—Sequential Games

In seeking the optimal strategies for games in which players take turns and where the full history of the game is known to all, you learn how to construct a “game tree” and are introduced to one of game theory’s key concepts: the Nash equilibrium.

4. Life’s Little Games—The 2×2 Classic Games

You examine four classic two-player games, with each player considering his or her own two choices. Simple though they may be, these games appear at the heart of larger, more complicated games and provide important insights into dealing effectively with others.

5. Guessing Right—Simultaneous-Move Games

You learn a general way of representing simultaneous-move games—where players make decisions without knowing those of others—and acquire valuable tools to solve them. Military and business examples are used to introduce the minimax approach, the iterated elimination of dominated strategies, and the best response method.

6. Practical Applications of Game Theory

Applying what you’ve learned to a new set of problems, you encounter surprising results. You see how a stock bid of $98 can beat one of $102; how insisting you lose a competition can be a winning strategy; and why being blackmailed can be in your best interest.

7. A Random Walk—Dealing with Chance Events

Many games include aspects that depend on random chance. Probability theory addresses such uncertainties. Using a simultaneous, two-player game, Professor Stevens shows you how to use probability to define the expected (or average) value of a payoff in an uncertain situation.

8. Pure Competition—Constant-Sum Games

Can you escape the second-guessing that arises when each player in a two-person game tries to anticipate the other’s choice? You learn how every such game, no matter how apparently hopeless, has at least one Nash equilibrium point.

9. Mixed Strategies and Nonzero-Sum Games

10. Threats, Promises, and Commitments

Can you gain an advantage by moving before the game begins? Such actions, called “strategic moves,” can be both effective and dangerous. You learn the three categories o

11. Credibility, Deterrence, and Compellence

This lecture explains how a player best gains credibility for a threat, promise, or commitment and also explores how these strategic moves are most commonly and advantageously used for deterrence (meant to maintain the status quo) and compellence (meant to change it).

12. Incomplete and Imperfect Information

What if some events or decisions are known to only one player? This lecture explores such games of asymmetric information and introduces you to a clever means of analyzing such a game.

13. Whom Can You Trust?—Signaling and Screening

This lecture uses examples from mythology, the animal world, movies, card games, and real life to show you how players in a game of asymmetric information try to convey information, elicit it, or guard it.

14. Encouraging Productivity—Incentive Schemes

How do you get others to do what you want them to do, whether in business, politics, international relations, or daily life? You learn how players create an alignment between the behavior they desire and the rewards other players receive and examine what can be done when the behavior being addressed is not directly observable.

15. The Persistence of Memory—Repeated Games

Although the games to this point have been simplified examples assuming no previous or subsequent interactions, real-life games generally don’t work that way. This lecture uses an iterated game of Prisoner’s Dilemma to examine the impact of repeated interactions on determining optimal strategy.

16. Does This Stuff Really Work?

Can game theory accurately model real-world behavior? You examine some of the reasons its track record for predicting behavior in a number of situations—some designed experiments and some observed behavior—has been mixed.

17. The Tragedy of the Commons

You explore what is essentially a many-player version of Prisoner’s Dilemma. Each player’s self-interested choices ironically contribute to a social dilemma in which every player suffers, in a scenario equally applicable to topics as diverse as global warming, traffic congestion, and the use of almost any nonrenewable resource.

18. Games in Motion—Evolutionary Game Theory

Classical game theory relies heavily on the assumption of rationality. This lecture examines a different approach that replaces the assumption of rationality with an evolutionary perspective, in which successful strategies are “selected for” and propagate through time.

19. Game Theory and Economics—Oligopolies

20. Voting—Determining the Will of the People

Can game theory evaluate voting systems? You apply what you’ve learned to several different approaches and encounter a theory that no system ranking the candidates can avoid serious problems before you move on to two alternatives that might.

21. Auctions and the Winner’s Curse

Auctions play a significant role in our lives, affecting the ownership of radio frequencies, the flow of goods over the Internet, and even the results produced by search engines. This lecture discusses some important categories of auctions and examines which is best for buyer and seller.

22. Bargaining and Cooperative Games

23. Game Theory and Business—Co-opetition

In the first of two lectures on Brandenberger’s and Nalebuff’s practical application of game theory to business decision making, you learn how to construct an analytic schematic of key relationships and discuss the impact of both players and the concept of added value.

24. All the World’s a Game

You complete your introduction to co-opetition by adding the concept of rules, tactics, and scope to the plays and added value before examining the materials in a broader context, particularly the relevance of game theory to our daily lives.