Skip to main content

Game Theory: Saving the World One Consulting Agency at a Time

The Economist

While originally created as an economic tool for making mathematical predictions about decision-making, game theory has become more applicable to different fields using computer software. Many consulting firms have started up, each touting their own software that relies on game theory for problem solving. These firms consult with major world powers and can provide very useful insights into businesses and governments.

While the economic benefits of game theory applications are quite apparent, there are a few applications to auctions that are not as widely known.  Before the United States ran an auction of radio-spectrum licenses in 2006, a software model of the auction found that by spitting up large blocks of the spectrum into smaller sections, less segments were overvalued. Some other economic applications are industrial auctions and corporate acquisitions and mergers, but the real global chance occurs when consultants apply their software to military scenarios.

Aside from typical economic applications, the military has always taken an interest in game theory. It was heavily used during the Cold War to predict the possibility of nuclear war, yet today it can be used to run virtual “war games.” These “wars” observe the capabilities of each side, and using mathematical analysis, can predict the outcome of conflict. Therefore, each side could potentially come to terms and settle matters peacefully, without losing any real lives. Game theory was even applied in a sort of “hide-and-seek” game style used for detecting the presence of fugitive terrorists. More recently, it was involved in locating Osama Bin Laden in the compound in Abbottabad, but game theory has many more applications beyond the military industrial complex.

Outside of military negotiations with countries, divorce and legal settlements can be arbitrated through the use of computer software. As both sides secretly rate how much they value possessions, there is no need to withhold information because devolving information will lead to the most socially beneficial outcome (a Nash equilibrium).

So while consultancy firms are sprouting up with their own home-brewed software, the only customers are currently large organizations and countries. With the price tag of ~$30,000-100,000 per problem solved, this technology won’t be used by a home consumer anytime soon. However, with such recent advancements made in the technology, and with the potential benefits so high, public software programs based on game theory may soon start to make their way into the marketplace.

A variety of problems could be solved, ranging from the Israeli-Palestinian conflict to what clothes to buy online. One alarming possibility is the potential to lose “free will” by resorting computer aids to make everyday decisions. While that possibility is far off, it is important to note that the computer models do not necessarily “solve” problems; they merely create a simplified representation of the problem. By boiling a problem down to its core parts, general strategies can be developed. Society has much to learn from using game theory computer software, but it is important to note that much of the world is random and that irrationality pervades every decision. One day, small problems may be solved by game theory, but until then, the larger problems facing the world will receive more attention.


Leave a Reply

Blogging Calendar

September 2011
« Aug   Oct »