Did you know that Great Britain’s departure from the European Union could be predicted by the same strategies you use in a game of chess? In fact, Brexit was inevitable according to game theory. The European Union sees the largest value in punishing Great Britain for leaving as an example to discourage other countries from following suit, even though that is not in the EU’s best interest.
Game theory, also known as the prisoner’s dilemma, is used to explain decisions in anything that involves a strategy and multiple players. Applications range from social and biological sciences to corporate business decisions and even new car sales prices. Any time two or more people have to make decisions that have consequences, game theory can be applied to explain their choices.
Let’s take the classic example, two people are arrested and are in solitary confinement. The prosecutors have enough evidence to convict them both, but not enough to identify the ring leader. Each prisoner has two choices: betray the other, or remain silent. The outcomes can be classified in a matrix as follows: they each betray each other and serve 2 years; one betrays while the other remains silent resulting in the betrayer set free and the accused serving 3 years; or both remain silent and each serve 1 year. Since betrayal has the highest reward, being set free, that is the dominant strategy.
This logic can be applied to climate change discussions. Although all countries would benefit from a stable climate, one country is hesitant to reduce carbon emissions. The perceived benefit with no change in behavior to one country is incorrectly assumed to be greater than if all countries’ behavior were changed. And hence, the impasse.
Game theory can be used to explain why two completely rational humans would not cooperate even if it is in their best interest to do so. What in your life can be explained by game theory?
Sources:
https://towardsdatascience.com/game-theory-101-for-dummies-like-me-2e9ab92749d4
https://www.scientificamerican.com/article/what-is-game-theory-and-w/
https://en.wikipedia.org/wiki/Prisoner%27s_dilemma
https://iea.org.uk/can-game-theory-help-to-explain-the-uks-current-brexit-difficulties/
https://www.investopedia.com/terms/g/gametheory.ap
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