It is in the human nature to love playing games of any sorts, enjoy the adrenaline of it, but ultimately to despise losing to others, especially your friends. Although we remind ourselves that winning the game wouldn’t bring us anything more than a temporary feeling of accomplishment, we cannot help but feeling angered by the losing the game. This is the reason why understanding how the game works is crucial in winning it. This is when game theory can be used to our advantage.
Utilized in various domains such as business, computer science and logic, game theory has revolutionized strategies and tactics used globally by experts. Although comprehending the concept to its full extent may be difficult, it is incredibly beneficial to do so, in order to improve your negotiating skills and develop analytical thinking. The easiest way to understand it is by researching the Prisoner’s Dilemma, a hypothetical situation where two individuals are separated without being able to communicate to each other, whilst being faced with the decision of cooperating or choosing to aid to their own interest.
Perhaps one of the most important useful aspects of this concept, which has been used by global conglomerates to increase profits and thus expand into billion-dollar empires, is Nash Equilibrium. Named after mathematician John Nash, the Nash Equilibrium is a theorem related to decision-making which states that a player can achieve the desired outcome by sticking with their initial strategy from the beginning to the end of the game.
A simple example that anyone can follow, starts by imagining two businesses (firm A and firm B) which produce and commercialize microwaves or any type of material goods. Each of the two produce 1 million microwaves per year and sell them for 30$ per piece. They have the exact same profit of 10 million dollars each year. Firm A decides to expand its operation and produce 2 million microwaves, selling them at 27$ each. The profit of Firm A soars from 10 to 14 million dollars. Firm B applies the same strategy and boosts production by adding an additional 1 millionmicrowaves. With two more million microwaves on the market, the selling price drops from 30$ to 24$ and the profit of the two businesses will suffer. In this case, the initial strategy is the best one to ensure profits for both firms, as Firm A and Firm B find themselves in a state of NashEquilibrium.
Nash Equilibrium is one of the many notions of game theory we can use in our everyday lives to predict outcomes and to decide on the best strategies to ensure profits or situations from which we can benefit from. Game theory is not only captivating, but it could give an immense advantage to those who know how to use it properly, when faced with decision-making or negotiations.
Bibliography:https://www.youtube.com/watch?v=eBQ2p8Xz-4Q
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