Game Theory: An Introduction

Towards the end of last year, I mentioned my created framework for five key geopolitical trends that will define the next decade.

1) Self-Sufficiency

2) Self-Interest

3) Connectivity

4) Game Theory

5) Cycles

So, to get my idea of this framework across, most threads on Thursday will be relevant to this framework in some way. At the end of the year (or even further into the future), I will have collected together a large piece of writing that could turn into a book. I’ve always wanted to write a book, and it is dependent on many things. It’s got to be unique and have a useful message or provide the reader with some knowledge they didn’t have before. But this is the start of the idea and I’m excited to see where it goes.

The aspect I want to explore first in my key geopolitical trends is game theory. Game theory describes the study of strategic or interactive decision-making. It is one reason I love geopolitics so much. Most decisions made by governments and world leaders are baffling. But there is always an underlying reason for the decision. Game theory can help explain that.

Photo by GR Stocks on Unsplash

One of the simplest aspects of game theory is zero-sum games. One party interacts with another in a decision-making environment. One party gain exactly what the other loses. There are countless other games involved in game theory. I’ll cover my favourites here. One example everyone will know is rock, paper, scissors!

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Before the games, we need to know the relevant criteria to identify these games.

· Number of players. – Each person who makes a choice in the game is a player.

· Strategies per player. – Each player chooses from a set of possible actions; this is strategies per player.

· Number of Nash Equilibria. – The set of strategies that represent the best responses to strategies chosen by other players. In simple terms, if every player chooses their best strategy, then no player has the incentive to change strategy.

· A sequential game? – Does one player perform their actions after another player? If so the game is sequential.

· Do the players have perfect information? – If it is a sequential game and every player knows the strategy chosen by players who chose before them, then they have perfect information.

· Is it a constant sum game? – One player gains if and only if another player loses.

· Move by nature aspect to the game? – If a game includes a random move by nature. This is usually made by a player who has no strategic interest in the outcome. In poker, the dealer plays the role of the nature player.

So, let’s move on to the games themselves.