"Game theory studies interactive decision-making, where the outcome for each participant or "player" depends on the actions of all. If you are a player in such a game, when choosing your course of action or "strategy" you must take into account the choices of others. But in thinking about their choices, you must recognize that they are thinking about yours, and in turn trying to take into account your thinking about their thinking, and so on."
You may have heard of Nash Equilibrium (A Beautiful Mind) where the two players establish the actions that will be in both of their best interests. This is usually explained using the Prisoners Dilemma (see below)
Say Ben and Alice have both been arrested for the same crime and are being held in separate cells. They are questioned by the police and have the following options; confess or stay silent. What should each do?
If both confess they each get 1 year in prison, if both stay silent they get 3 years apiece. If one confesses and the other stays silent, the confessor gets 5 years and the other one goes free. Game theory explains what strategy each player should select to minimize their time in jail.
Click on the link below, watch the video from the British game show "Golden Balls" and answer the 3 questions in your response.
http://welkerswikinomics.com/blog/2012/04/20/golden-balls-game-theory-the-prisoners-dilemma-and-the-cold-rationality-of-human-behavior/
