Showing posts with label Game Theory. Show all posts
Showing posts with label Game Theory. Show all posts

Saturday, May 23, 2015

We must weigh the horror of war vs the horror of peace: Game Theory for the uninterested




We must weigh the horror of war vs the horror of peace: Game Theory for the uninterested


I like the idea of game theory, but I find discussions about imaginary parlor games used to illustrate game theory extremely tedious. However in a book by William Poundstone (cousin of comedienne Paula Poundstone, and a man routinely described as "The Smartest Man In the World") I found a description of a simple game invented by Martin Shubik.



Shubik's Dollar auction is simple, unlike the dice throwing, three-sided coin tossing, etc. contained in many of the theoretical exercises dreamed up by employees of The Rand Corporation:

1) The highest had to pay what they bid, but they get the dollar bill.
2) The next-to-highest bidder has to pay what they bid, but gets nothing!

A penny is bid for the dollar. What a deal! Someone else bids two cents. Eventually the bids reach 99 cents and $1. If the bids stop the 99 cent bidder will pay 99 cents for nothing. If they bid $1.01 they'll pay $1.01 but get the dollar being bid on so they only lose 1 cent!

The other bidder sees this and his even higher since a winning bid of up to $1.99 would result in paying a $1.99 but getting the dollar bill-meaning they'd only lose .99 cents, of the bidding stopped there the 2nd place bidder would pay $1.98 and get nothing-a loss of $1.98.

Throwing good money after bad, only in this game you're trying to lessen your losses by doing it. In real life you'd maybe pay your auto-mechanic a few hundred dollars more to hopefully fix the problem and not have to spend tens-of-thousands on a new car-which would be a win and not just a lessened loss...unless the mechanic bill reaches into the thousands (blown engine, ruined transmission, etc).

Routinely games like these were used as jumping boards for the theories of how to wage wars, how to "win" an all out nuclear holocaust, etc. In "Prisoner's Dilemma" relates a Dollar Auction moment when Saddam Hussein said, "Iraq's material losses are already so great that we must fight to the end."

The scary thing is that unlike most of game theory, in the Dollar Auction there is no mathematical way to prove what is the most rational way to play. It's a simple game that is hard to tell when someone is winning, or even what winning looks like.

Poundstone's book is actually a biography of John con Neuman, Game Theory and the issues surrounding nuclear war. It's filled with great tid-bits (even of you skip over the dice-throwing and amoral tic-tac-toe-like games).