Joke: The dumbest kid in the world - A young boy enters a barber shop and the barber whispers to his customer, "This is the dumbest kid in the world. Watch while I provide it to you." The barber puts a dollar bill in one hand and two quarters in the other, then calls the boy over and asks, "Which do you want, son?" The boy takes the quarters and leaves. "What did I tell you?" said the barber. "That kid never learns!" Later, when the customer leaves, he sees the same young boy coming out of the ice cream store."Hey, son! May I ask you a question? Why did you take the quarters instead of the dollar bill?" The boy licked his cone and replied, "Because the day I take the dollar, the game is over!"

You have three players, A, B and C with one bullet each, and chances of successfully shooting a target 10%, 90% and 60% of the time. They will take turns at trying to shoot each other. What should A do?

Answer: A should purposefully miss the shot (Get the intuition right first, then get the math)

Game of sharing rewards - There are two finalists tied in a game. Total reward of $50000. Are are asked separately if they would share the reward. If both say they would share, the reward would be shared. If one said share, and the other said he won't, the latter gets the whole $50000. If both said they won't share, no one gets anything.

Let kids play and try to figure out what kids do.What is the best strategy?Does it help if people are allowed to talk to each other before making a decision?One possible strategy - tell the other guy you are not going to share here, but give him money later?What if in case of share/won't share, the winner gets $60000?

Practical application - Advertising spends. Competitive advertising spends are not believed to yield results, they cancel out. If both advertise or none advertise, no gain. If one advertises, the gains are huge. How do you plan your advertising?

Practical application, overtaking from the wrong lane... Let kids think about it.

Prisoners' Dilemma - Two prisoners, both being asked to tell who did the crime. If both don't confess, they just stay in jail for 5 years. If one rats out, he is set free and the other person is hanged. If both confess, both of them are given a 10 year jail. What should they do?

Draw the choice matrix and rewards for each. What should prisoner 1 do if he believes that prisoner 2 will confess? What should he do if he believes that prisoner 2 will not confess? Similarly, what should prisoner 2 reason? What will be the outcome of this game?The dominant strategy here is for both players to confess. This is called Nash equilibrium. Each player is playing the best response to the other person's chosen strategy. Each player is reacting best to what they think the other person will do.Equilibrium outcomes are not necessarily the best! There is a better outcome for both if they cooperate.

How can cooperation be sustained in real world?

In repeated games, people have chance of testing waters.Go back to advertising choices - if over time no one deviates from normal ad spend, cooperation sets inPossible Strategy? Tit for tat!

The Meeting Game: Husband and wife have left their cellphone at home, and need to figure out where to meet in the evening - either dinner or movie. If both go to dinner, they are both very happy. If they both go to movie, both are ok. If they miss each other, they are sad. (20,20 0,0 0,0 10,10 matrix)

Evaluate this using each person's decision tree - No dominant strategy!What is the equilibrium? There are two equilibriums... We don't know which one is going to happen.Both could choose 20,20. If both were 10,10 then no way to guess

Batch 2 - Class 43 - Game Theory