I answer your question, What is game theory in this quick and dirty video. I briefly touch on how game theory is used in all aspects of life including prisoners, Bitcoin to eSports and Blockchain. Don’t forget too….
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For those who would like to also follow along with the video, or prefer to read the information, here’s the video script for reference:
What’s going on crypto Family? So in this video, we are going to be going over a topic you’ve asked me to cover, which I think has numerous real-world applications.
In this video, we’ll go over what game theory is and why it’s an incredibly powerful tool for decision making.
Modern Game Theory was introduced in 1944 by John Von Neumann with the book “Theory of Games and Economic Behavior” and further developed by other scientists like John Nash. (who was played by Russel Crowe in the movie “A Beautiful Mind”)
In Game Theory, a “game” is any interaction between multiple people in which each player payoff is affected by the decisions of others.
A classic example is the prisoner’s dilemma:
Rufus and Bob, two bank robbers, got caught while escaping after their last endeavor.
The police have a problem though: despite all the evidence, there is no eyewitness because the criminals covered their faces during the robbery. The persecutor can go only for a minimum sentence, but it’s not enough.
So, the police force them into a competition.
They are both kept in custody, in separate interrogation rooms and they cannot communicate in any way. The persecutor pays a visit to each one of them and proposes to accuse the other.
There are three possible outcomes for this scenario:
If both stay silent, they get two years each. (because of the lack of evidence)
If both rat out the partner, they will serve five years each.
But, if one of them talks and the other one stays silent, the snitch can walk free while the accused will spend ten years behind bars.
Which is the best option?
So how does Game Theory apply here?
See, they are both hardcore criminals, they can’t trust each other, and the police tricked them in a non-cooperative game.
In this case, the best choice is called a Nash Equilibrium and is the choice that grants the outcome that leaves you better off no matter what your opponents decide to do.
Looking at the situation in this perspective, spending only two years in jail was never on the table right from the start. Remaining silent is a valuable option only if the other partner does the same giving up the possibility to walk away for free. For a Nash Equilibrium, however, this is not acceptable. The only viable option is the selfish choice of telling on the partner and serving for five years.
If this doesn’t feel very realistic, it’s because in a simple and non-repetitive game like the prisoner’s dilemma there really aren’t enough variables to mitigate a selfish behavior in the interest of a higher payoff. And the game ends up looking pre-determined from the get-go.
To reach a higher level of realism we should consider a more complex game:
Let’s say you are an investment company, and you have a client. Your client gives you 100,000 dollars to manage and invest on his behalf. After a year of investing you get 1,000 dollars because of your 1% commission.
In a non-repetitive game, albeit-also not considering the legal, moral or ethical consequences… it might seem better off running away with the money and earning 100 times more than that 1% commission, but… what happens if the game repeats in a non-predictable way?
Let’s say that every time the game repeats, your client gives you an extra 100,000 dollars to invest.
Once the money is invested you can’t steal it anymore, but your 1% interest becomes a compound interest game after game. Assuming that every game has a 5% chance to be the last one, on average you get to play 20 games.
In 14 games you will make more than 100,000, and you can make more than double by playing all 20.
This starts to feel more real, but 20 games are still a consistent risk. We have to introduce a new variable: reputation.
If the game repeats, you are not stuck with just one client. In a repetitive game, you have the chance to acquire new clients and multiply the money you can make per game. Since nobody knows when the game will end, in order to maintain your clients and make an outrageous amount of money you have to keep your reputation intact, so you are more than motivated to not take the money and go.
In a utilitarian model like Game Theory, the impossibility to know if an interaction is the last is what builds trust between individuals, because you know that you may need to interact with them again in order to reach your best interest.
These are called stochastic games, and they give to the prisoner’s dilemma a whole new dimension. In fact, in a stochastic environment, ratting out your partner can have some serious consequences in the criminal world, turning silence into a much more convenient option. In fact, it’s usually what happens in the real world.
The science that supports Game Theory is complex, fascinating and extremely versatile. It’s widely used for military strategies, politics, economics, and more. It can be applied to almost any context where decision making is involved, and cryptocurrency is no exception.
Now if you’ve been following my channel for a while, you may remember a video I did last February with the legendary Max Kaiser.
During the interview, he breaks down how Game theory has been built into Bitcoin quite beautifully. Make sure you go check out the interview I did with him, as it’s definitely cool to see his perspective on things.
You’ll be able to view the video at the link on the left side of the screen after just a few seconds, i’ll be right back..
So, i’m back, and before I share the link to the Max Keiser interview, I’ll go over how you can enter to win $100 of BCH!
For your shot at winning $100 of BCH, simply look at the pinned comment below, follow the instructions, come back here on Monday, hang out with us, see if you won, it’s a great time!
Now for the Interview we did with Max Keiser with him explaining Game theory and how it applies to Bitcoin, be sure to go check out our Max Keiser Interview Video on the left side of the screen right here. https://www.youtube.com/watch?v=o9GujTBZqoE
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I hope you have learned something new with this video on game theory, and the interview with Max Keiser.
Please let me know in the comments below too, what else you want me to cover!
As always, Love ya, God bless ya,
See you on the next Video!
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** This is not financial advice and these are simply my own opinions, as such, this should not be treated as explicit financial, trading or otherwise investment advice. This is not explicit advice to buy these cryptos, do you own research.**
***Disclaimer: Statements on this site do not represent the views or policies of anyone other than myself. The information on this site is provided for discussion purposes only, and are not investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities.
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Thanks for watching, God Bless and have an awesome one!
#Bitcoin #gametheory #blockchain
Also, be sure to check out our other articles on to cryptocurrency, bitcoin and blockchain technology below:
“Blockchain: What It Is and How It Works”; which delves into the history of blockchain, how blockchain works, how cryptocurrency uses blockchain, discusses anonymity, various types of blockchains and the different uses.
“What is Ethereum? How does Ethereum work? ETH Explored:” Dive deep into one of the largest blockchains, discover how it is different from Bitcoin and other cryptocurrency projects.
“How To Store Cryptocurrency / Safeguard Your Crypto Assets”; which discusses the most popular cryptocurrencies, how to protect your crypto, online wallets, offline storage, specialty hardware, crypto exchanges, and even gives Crypto Beadles Personally Recommendation with storing cryptocurrencies.
“Scrubbing Currency: A Comparison of Crypto to Fiat for Known Money Launderings”; This article dives into the various efforts to curb money laundering, typical money laundering with fiat currency problems faced by authorities worldwide, the rise of cryptocurrency, the differences between traditional fiat and cryptocurrencies, the history of traditional banking and it’s many failures.
I recently released a book called “The Bitcoin and Blockchain Booklet: The Beginner’s Guide to Getting Started with Cryptocurrency” on Amazon.com. You can grab it on Kindle and paperback to learn more about blockchain and cryptocurrency.