Game theory: meaning, importance, types, and examples

In brief, game theory covers the analysis of “mathematical models of strategic interaction which has to be among the rational decision makers”, which has found its usage in all disciplines of social science, and also in subjects like logic, systems science, and computer science. Initially, this theory approached zero-sums games. In these games,  the losses or gains of all the participants are balanced by those of the other participants of the game. In the current times, or in the context of the contemporary era, this theory applies to a range of behavioral relations.

The Oxford Concise Dictionary of Politics and International Relations explains the meaning of Games Theory in the following way:

A game is any situation in which the outcomes (‘pay-offs’) are the product of the interaction of more than one rational player. The term, therefore, includes not only games in the ordinary sense, such as chess and football, but an enormously wide range of human interactions.

Definitions of the Games Theory include:

• The mathematical study of strategies for dealing with competitive situations where the outcome of a participant’s choice of action depends critically on the actions of other participants. (COD)
• Games theory is an abstract and deductive model of policy-making. It does not describe how people actually make decisions, but rather how they would go about making decisions in competitive situations if they were completely rational. Thus, game theory is a form of rationalism, but it is applied in competitive situations where the outcome depends on what 2 or more participants do. – Thomas Dye

Game theory has a direct association with human interaction and it aims maximization of profit or the rationalization of decisions. Profit and decision, therefore, constitute a significant part of game theory. The theory has primary significance in economics and also considerable significance in political science as a whole and International politics specifically.

At first, the innovative idea of applying the concept of games to social science, especially in economics and political science crossed the minds of intellectuals in the decades of the 1930s and 1940s. P.G. Chambray’s “The Game of Politics: A Study of the Principles of British Political Strategies” is considered to be the first and most methodical work on game theory. In the year 1943, Neumann and Morgenstern published the Theory of Games and Economic Behaviour. Other scholars linked to this theory are Schelling, Riker, Kaplan, Raiffa, and so on. The game theory became popular when it started getting applied to the study of power games or strategy of each superpower to counter the move of the rival i.e, the cold war era.

Assumptions of the theory

The assumptions of game theory are as follows :

1. The first assumption is that there exists at least 2 players because for any game to commence, this is a basic and primarily requirement. The number can definitely be more than 2. The number of participants depends on the game’s quality and how much willing the participants are.
2. Here, the word ‘player’ refers to decision-maker. All the participants of the game are interested in those decisions that are likely to be in their favour.
3. Another assumption is that there exists a strategy in every game which is decided by the player of the game.
4. The next assumption is that the participants’ actions are guided by rationality always.
5. Then, it is assumed that the players are aware of the existing alternatives from which they choose one or more. It is further considered that the rationality of the participants guides them while choosing.
6. It is assumed that while choosing from among the alternatives, the participants adopt the rule of priority.
7. The approach of maximization of profit and minimization of loss is the core of the theory and this is called strategy.
8. The pay-off that that is received from the game has to be in complete conformity with the players’ own choices and wants.
9. Another assumption is that the player is not only rational but also intelligent.
10. In every game, there’s a considerable level of uncertainty involved.
11. The assumption of the game is minimax policy.

Importance of Game Theory

The importance of the Games Theory can be stated as under :

• When conflicts arise, for instance in international relations, game theory has been in use as a part of the procedure for the of decision making. In a game situation, the unit of individual decision might be an individual, a group, or a whole nation which is not completely controlled by other decision units it has to interact with. All the decision units have their own set of goals and objectives. Each of the decision units has to achieve as much as possible. However, they have to keep in their minds that there are other decision units whose goals are not the same as theirs and whose actions affect all the others who are involved in the situation. The participants of a game are located in such a way that there can various possible outcomes of their actions with distinguished values to them. Decision makers are, consequently, within a situation of interdependence. All the units have the liberty to make their own independent choices but the overall outcome rests on the choices made by each participant. This theory applies to policy-making where there exists no independently best choice that can be opted for but these best results depend upon what other players do.
• Game Theory has been used as an analytical tool by social scientists to give explanation for social behaviour in a situation of conflict. It, therefore, is a kind of mathematical study to tackle competitive or conflicting situations.  2 most significant pillars of game theory are rationality and maximization.

Types of Game Theory

Zero-sum Theory

The Oxford Concise Dictionary states:

A Zero-sum game is one in which the aggregate pay-off – the sum of the pay-offs for all the players put together – is the same in all outcomes.

This game is played by 2 players Zero-sum games refer to a mathematical representation of an occurrence where the advantage won by one player is lost by the other. Thus, what is gained to one is definitely a loss to the other.  Poker and chess are examples of Zero-sum games. To state an example from international relations, one can mention how Donald Trump, when he was the president, treated foreign trade. For every dollar that America used to spend in buying goods from over the seas, it meant the loss of a dollar for the country. In 2021, the State Department in New York, while describing its relationship with India as a ‘” global comprehensive strategic partnership” stated that Washington’s policy of a de-hyphenated relationship with India and Pakistan is not a “Zero-sum game”’.

Variable-sum Games

This theory was narrated by Karl Deutsch in “The Analysis of International Relations”. He says,

These are games in which the players not only win something competitively, from one another, but also collectively, to gain or lose something from an additional player. Such games are mixed-motive games for their primary players.

Chicken and prisoner’s dilemma are most common form of non-zero-sum game. Other games include Dictator game, volunteer dilemma and centipede game.

Prisoner’s dilemma

This refers to such a situation in which individual decision-makers, every time, have the incentive of choosing in such a process that leads to a less than optimal outcome for the individuals as a group. In other words, it refers to such a situation where the rational player involved might not choose to cooperate, even if that appears to be the better thing to do.

The New York Times, in a December 2020 article, quotes Dr. Chris Bauch – “The pandemic is a prisoner’s dilemma played out repeatedly.”

Also Read: Power Elite

Limitations

There are certain limitations of the theory. They are as follows :

• This theory, like most of the economic theories is based on various assumptions like the players are rational and intelligent. Game theory doesn’t consider the social context of a player on which his actions are dependent to a great extent. These are, thus, a very faulty assumptions.
• Another drawback is that this theory does not consider the fact that in order to take rational decisions, one must have access to all information. The players are not subjected to first hand information.
• This theory doesn’t give any place to norms, values, ethics etc.

Conclusion

This theory is considered to be a tool and not a toy. Mackenzie notes that even if it is viewed as a toy, it might have various uses. In spite of all the limitations, this theory is still one of the most popular theories, catering to various disciplines. According to Deutsch, this theory is still developing and various new theories have come up to give this theory a further inclusive nature. No theory of social science is devoid of errors and the game theory is no exception to that. But with the help of the current developments, this theory is becoming more encompassing, inclusive and relevant day by day.

References:

Public Administration, Mohit Bhattacharya

Oxford Concise Dictionary of Politics and International Relations

https://www.investopedia.com/terms/

https://www.piie.com/blogs/trade-and-investment-policy-watch/markets-dont-believe-trumps-trade-war-zero-sum

https://www.nytimes.com/2020/12/20/health/virus-vaccine-game-theory.html

https://en.m.wikipedia.org/wiki/

https://en.m.wikipedia.org/wiki/Zero-sum_game