Economics Terms A-Z
Game theory refers to the study of the choices actors make which produce outcomes based on their preferences. In short, it's a way of predicting how economic agents are going to act, which has real-world application, meaning the results of releasing products or competing in business can be more accurately predicted. It is assumed in game theory that actors act rationally, that is, that they act in order to maximise benefits to themselves. (Some ideas, such as those of behavioural economics, are in conflict with this assumption.) If actions are 100% rational, theoretically they can be predicted by placing actors into a ‘game’ and controlling their actions until certain outcomes are reached.
The game refers to a set of circumstances and actions between two or more players that result in a particular outcome. Each player has a strategy, and the payoff of the game benefits an actor depending on what their strategy is. The information set refers to what the actors in the game know at any given moment. The game finishes when an equilibrium is reached, after all players have made their decisions and the outcome becomes clear. The concept of game theory has many applications, but initially referred to zero-sum games, in which the gains of one player are exactly equal to the losses of another. It has now been expanded to refer to a wide range of situations and refers generally to the study of decision making, generally of humans, but also of animals and computers. There are many types of game theory, some of which may be familiar, such as the prisoners’ dilemma and the dictator game.
Love by the Numbers: Using Game Theory to Calculate Romantic Success
Following up on last year’s Valentine’s Day post Would you Date an Economist?, this year we’ll tackle the next step: how to predict the potential success of your relationship – using game theory. Once again, we’ve compiled a list of authors, researchers and scholars who have attempted to crack the code of love using numbers and logic.
Economic Board Games: Monopoly and Real-Life Economics
Monopoly – the name of both an undesirable economic situation and one of the most popular board games around the world. Robin Williams grasped both meanings, saying “Monopoly is just a game, senator. I’m trying to rule the god-damned world!”. This mischievous word play provokes the question of how the game reflects the economic condition.
Who Will Win the 2014 World Cup? Econometrics Can Tell Us
In a post about the Olympics this past winter, we mentioned research linking the economic development of a country to its chances of taking home a large number medals in the Games. While it might seem reasonable to extend this logic to the World Cup, in-depth econometric and statistical analysis indicates otherwise. So how can we best predict who will come out on top in this year’s World Cup?