Real Life Applications of the Game Theory

For most of us game theory sounds like some play stuff rather than a serious intellectual science. But the fact that it is something way beyond games and mere empirical estimation is reflected through its extensive use in USA’s controversial anti terror security program the- PRISM. The basic function that the PRISM performs is to accumulate data from numerous data sources sometimes obtained from spying over the internet and keeping a watch on almost everything and everyone which is then fed to a game theory based algorithm that outputs the potential threat zones, Seems like a novel life saving scheme but peeping into embassies and personnel lives has gone wrong and there came the entire Snowden episode.

Game theory estimates the chances of occurrence of an event based on the fact that everyone involved will work for their maximum profit and as long as the parties involved are rational the estimation doesn’t go wrong. Ask Bueno de mesquita the man who works for US government and successfully predicted many political events. Everything is done mathematically and every party involved is given a number according to its say and expected favor. Some matrix or algorithm gives the output which suggests the expected outcome. And interestingly in a significant number of cases the estimation comes out to be correct.

This theory has varied fields of applications like trade, economics, diplomacy, biology etc.

Many companies hire professionals of this field to estimate the quotation they should put on, to snap a tender. The use of this method is swelling up in other related corporate fields including bidding and auctions. Wherever there is competition there is a room for game theory.

An important sub-discipline of economics ‘the behavioral economics’ uses game theory as a tool. Behavioral economics fundamentally deals with behavior of concerned parties that tend to affect their monetary/economic decisions. Everything like procrastination is kept in mind in this particular approach. So without any surprise a great number of Nobel Prize winners in economics are associated with game theory.

Have you seen the popular movie “a beautiful mind” based on Nobel laureate John Nash? ...well Nash is a game theorists and his theory that won him the Nobel the Nash Equilibrium was an important work of game theory.

Mesquita has written many books including a recent one called “the predictioneers game” on the aspects of this theory by which one can prophesize the future. He has made some very interesting predictions also!