Game theory has been the subject of many recent discussions I’ve had with curious college students, aspiring economists, and adults alike. In general, the core concept is quite simple and boils down to a basic question: given a certain situation, what is your best response to another party’s action(s), assuming all actors are rational? Or, in other words, what reaction yields the recipient the highest possible utility (a measure of one’s satisfaction)? For example, if my friend posts an embarrassing photo of me on Facebook (FB), I have two choices: ask him to remove the picture, and consequently damage our friendship, or say nothing, and risk significant public ridicule. If I am satisfied with my group of friends than I’ll ask him to delete the photo and deal with the ensuing fallout. However, if I view our friendship as particularly important, I won’t fuss over the photo (so as to keep my relationship intact), and tolerate the inevitable Facebook backlash. Although neither situation is opportune, and assuming I have plenty of friends, the first choice is less costly (i.e. I receive higher utility from this decision) and, therefore, more attractive. Such an example is a completely simplified version of what is known as a “strategic form game,” which can occur between any number of actors.
Although we may not always consciously acknowledge the fact that our mind is processing millions of data bits every second, we innately use game theory in our everyday lives. Every immediate, or reactionary, decision you make is the result of prior experiences, acquired knowledge, and intelligence (to some extent). These subconscious decisions are made to maximize your utility and are, therefore, considered rational.
Perhaps the most well-known of all strategic form games is the Prisoner’s Dilemma. It was constructed by Merrill Flood and Melvin Dresher in 1950; however, unlike traditional game theory models, the Prisoner’s Dilemma illustrates a situation where two rational actors don’t act rationally. To put it simply, Flood and Dresher envisioned a situation where two accused criminals are interviewed by law enforcement. They can either confess to the crime or betray their partner; ultimately, this game has three outcomes: 1) they both confess and each criminal serves very little prison time, 2) one player confesses and the other betrays him, in which case one criminal walks free and the other spends a long time in jail, and 3) each player betrays the other, so as to avoid jail altogether, and each criminal serves a modest amount of time in prison. If we assume each player is rational, and doesn’t know the other’s decision, we witness both players betray each other. Yet, if both criminals confess, which is an “irrational” decision, they each receive minimal jail time. Thus, in this collective effort, if each player deviates from logical procedures, the outcome is opportune.
The reason I mention the Prisoner’s Dilemma is because I have experienced such situations on a daily basis, mind you not on a criminal level. Instead, I’ve witnessed Prisoners’ Dilemma mentality on social media platforms, specifically Twitter (TWTR). Whether the company meant to or not, Twitter’s “follow” function has become a classic real word game theory example.
The Prisoner’s Dilemma model illustrates my every interaction with people who use Twitter for purely egotistical purposes (i.e. they have no objective other than to increase their follower/following ratio). As such, I’ve found myself constantly participating in cat-and-mouse games with people who “follow” me. I use Twitter for purely informational reasons, so when someone adds me I naturally “follow” back; after all, it only requires a simple flick of my finger. However, after doing so, I’ve often noticed that some members who “followed” me then choose to “unfollow” me, so as to increase their social popularity. Unimpressed by these antics, I always respond by doing the same; how can anyone be so immature and superficial these days? Anyways, that’s an issue for another day; I’m no behavioral psychologist.
Returning to economics, these Twitter actions perfectly imitate the Prisoner’s Dilemma. With their childish mindsets, such actors pursue the route of “betraying” me and hope I don’t notice. In doing so, they have the potential to maximize their utility, but it’s risky. Whereas if they didn’t participate in these shenanigans, both of us would benefit from increasing our online presence and the sharing of free information.
This example may be shallow and meaningless, but I don’t often see such theories so clearly demonstrated in real life. That being said, I thought I’d share my knowledge and experience with those interested in economics or, more specifically, game theory.