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Game Theory in Personal Relations

Lets play a game. There is an envelope and it has some amount of money inside. Now lets say that I am given the option to look/not look into the envelope. I then decide if I want to cooperate, in which we split the money, or defect, in where I take it all. You being the second player, can then choose if you want to continue this game or quit. What would you do if I defected? A understandable answer would be to retaliate and quit the game and thus blocking me from gaining any future earnings. If I cooperated, you would then continue the game in hopes that I would cooperate again in the next round. But what if I looked first and then made my decision?

At first glance it seems as though the only two factors in play when calculating a Nash Equilibrium would be my choice, cooperate or defect, and your choice, quit or continue. In which you continue the game only when I cooperate. However, what if you implemented a different strategy where if I decided to look inside the envelope you would quit even if I cooperated. Would you gain anything? Would it change the game? Well as it turns out it does. Although the choice to look has no effect on the payoffs of the game it still, however, effects the player’s strategies and thus, the Nash Equilibrium of the game.

How does this matter in real life. Let us take for example another game: The Dating Game. Now let’s say that you are known to be very strict when it comes to your significant other. Your strategy is thus: If they flirt (look) at another person (envelope) you then quit (break-up). People will then know this strategy and boom no more flirting. OK, perhaps that isn’t the best strategy and really is just trying to illustrate a point. It is important whether a person looks/doesn’t look. For example, in the envelope game there are two type of defectors those who look then defect and those who don’t look and defect. Obviously the person who didn’t look then defected is seen more negatively since they chose to defect regardless of what was in the envelope. We can take this idea and apply it to our everyday life: What should I do if someone asks me for a favor I know i’m not going to do regardless what it is? This is where game theory and Pérez-Escudero come into play.  “I will first ask what favor is it, and then present an excuse. My asking here would be a false signal that prevents you from realizing that I’m such a bad person that I would not grant you even the smallest favor.”


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September 2017