Nova workboard

a blog from young economists at Nova SBE

Are you better than the chimps?

In a recent study led by behavioral economist Colin Camerer, it was found that chimpanzees at the Kyoto University Primate Research Institute consistently outperform humans in simple contests drawn from game theory. The question then is how well do we know about playing the game aside from what John Neumann and John Nash has been recognized with a Nobel Peace Prize?

What psychologists call the theory of social situations economists call the game theory. Game theory is the science of strategy, which attempts to determine mathematically and logically the actions that players should take to secure the best outcomes for themselves in a wide array of games. These games all share interdependence, which means that the outcome for each participant depends on the choices of all. There goes the saying ‘You win some, you lose some’ in the so-called zero-sum games where one person’s gain is someone’s loss.

Since 1950, economists, political scientists and the military have used its principles in determining potential outcomes for policy-making. In the 1980s, businesses began to use game theory in pricing, product creation, mergers and acquisitions, and labor negotiation decisions. But even a layman can also adapt the concept of game theory in making life decisions.

How can we have better salaries through negotiation, how to save your relationship, how to make money in the markets, how to deal with real estate purchase and whatnots? In each of these scenarios, the actions of others greatly affect the choices we make and the outcome for such decision-making. However, we have no complete information of how other people think. Therefore, we have to figuratively put ourselves in the shoes of all and try to calculate the outcome. Our own best action is an integral part of our overall calculation.

Take the example of relationships. Most often than not, we face arguments even with the closest people we have, be it with our parents (of strategizing to get that new gadget), with your best friend (at the brink of being enemies forever) or probably with your boyfriend/girlfriend (of trying to win where your date will be).

In these circumstances, there presents a possibility of a cooperative strategy of finding a reasonable solution (ie your parents give you what you want as long as you pass all your subjects) or of a non-cooperative strategy (ie you are not getting anything whatever the reasons are), where you risk the chance of a relationship breakdown. Ideally, as part of human nature, we try to cooperate and find compromise. Game theory tells us that we can’t have it all but we’d like to at least be better off with the decision we’d make.

Now, what do you do when you’re faced with a conflict with someone that would make you or break you? We take note on Paula Szuchman’s article Marriage and the Art of Game Theory.

Think ahead; try formulating the repercussions of every option you have in mind, and imagine yourself calculating the outcome. Learn from the past; use your knowledge to the advantage of knowing what should and should not be done based on previous events and situations. And, as what John Nash said, figuratively put yourself in the shoes of the other person. We might think that we fully know the person, but one should always account for uncertainty.

You probably might not be better than the chimps, but you can definitely learn to play the game.

#714

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Author: studentnovasbe

Master student in Nova Sbe

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