What is Game Theory?

Imagine the following scenario. Two people committed a crime together and both got caught. They were put in different jail cells and told that whoever confesses first gets off without any jail time. The catch is that neither prisoner knows what the other one is going to do. The scenario can play out as follows:

Now instead of this applying to two people, think broader. A good example would be a scenario in which a city is undergoing a drought. The city will ask its citizens to stop watering their lawns, take shorter showers and conserve water at the expense of their personal comfort. In many cases, restaurants will ask their customers if they want a glass of water instead of pouring it upon being seated. Now, imagine a restaurant that doesn't want to taint its stellar reputation and continues to serve water without asking. Or someone who continues to take long hot showers despite the bigger issue at hand. At the expense of the entire city, these people continue to consume potable water for their own personal comfort; the majority suffers because of the actions of the minority. But if no one splurges, then everyone has to endure uncomfortable conditions, but the water supply lasts longer. If everyone continues to use the water as they please, then the water will not last for very long; everyone remains comfortable but for a shorter period of time.

Keep in mind, everything is a calculated risk. In the case of the prisoner, the person confessing can only hope the other person did not confess. In the case of the people abusing the water, they can only hope that everyone else conserves and the drought does not last long.

This success and failure of this "calculated risk" can be seen in every aspect of our lives. The simplest way to understand this concept is through playing a game of chess.

Economics:

By investing in the stock market, you become a player. You have invested your money in a company knowing that you will either make money or lose money, but you don't know which. The company needs your investment to thrive. The decisions the company makes will either drive the price of its stock up or down, which determines its future success. The stockholder does not know what decisions the company will make, and the company does not know what decision the stockholder will make.

Gentrification:

Gentrification is a trend in urban neighborhoods, which results in increased property values and the displacing of lower-income families and small businesses. This is a common and controversial topic in urban planning. Some say this is a trend, but I say this is a trend rooted in a very well calculated risk. People with money have power. If they know they can take over a neighborhood by slowly upscaling it without much consequence, what's going to stop them? At one point this was a calculated risk for the wealthy. This is an example of game theory that has happened often enough to become a trend in urban neighborhoods.

Political science:

Making a decision in times of a domestic or international political conflict is all about weighing the odds. The most weighted question politicians are faced with is: how will this affect my country in the future? Understanding the reactions, actions and decisions other politicians will make in reaction to one's decision is what makes this game theory. You do not know if the other politician is bluffing or serious. It's a judgement call. The best example of Game Theory in politics is the Cuban Missile Crisis.

These are just several examples of how applicable such an intriguing theoretical concept can be applied to world conflicts that in essence affect our daily lives. Just think, look around you and you will discover so much.