Topic 16: Game Theory and Chicken

This week we experimented with game theory using "The Prisoner's Dilemma." We found that the equilibrium (the Nash Equilibrium) occurs when each player acts in his/her own best interest no matter what the other does. As we found, this always ends up in a "bad" result. Considering the video clip and what Nash says about Adam Smith, and considering the results of our experiment, comment on your thoughts and feelings about how people behave in competitive situations.

• Game theory assumes that people make rational decisions. Do you think that assumption is valid?
• Do you think that the "bad" outcome is always inevitable? Why or why not?
• Under what circumstances might a better outcome occur (think of what Nash says in the video)?

• Game theory's assumption that people make rational decisions is mostly true. However, there are two cases where this is not the case. The first one is when people are emotional. Scientific studies have proved that the limbic system may sometimes overcome our rational brain, and thus result in irrational and impulsive decisions and actions. The other case is when people are uninformed. When people do not know all information pertaining to something, then they cannot make the best and most rational choice.
• The "bad" outcome is inevitable unless during exceptions such as when people make mistakes or during accidents (and they get lucky and stumble upon the best outcome for them). We assume that people always make rational decision; because of this, they always choose the action that's best for them. And these actions are always one of the "bad" outcomes due to the Nash equilibrium (people choose the dominant strategy).
• As mentioned above, a better outcome might be accidental, when people make mistakes, or when accidents happen and something out of human being's control happens. Another way for a better outcome to happen is, as Nash said, for people to communicate and cooperate so that they all get the best out of what is available.