The theory of social situations and game theory are often used interchangeably. Game theory is an intricate component of skill-based games such as bridge and poker, and the thrust is how players interact with one another. Game theory is further divided into non-cooperative and cooperative components. In the former, goal achievement is the objective. Non-cooperative game theory is evident in poker games, where players focus on winning. Game theory also closely correlates to general equilibrium, decision, and mechanism design theories. The most instructive way to describe games is by detailing the strategies available to each player and listing each player participating in the game.

Understanding the Traditional Game Theory Model

In a 2-player game, there are rows and columns to determine possible outcomes. The first player's actions are listed in the rows, while the second player's actions are listed in the columns. This matrix is then presented with payoffs to the first and second players in turn. The Prisoner's Dilemma is a common game theory matrix concept. In this game, both players have been apprehended by the authorities and interrogated separately. The objective is to have the prisoners confess to the crime. In the Prisoner's Dilemma game, the utility, measured in utils, would be highest if both prisoners were set free. If neither confesses, they derive maximum utility and leave the police holding cells. If both prisoners confess to the crime, their prison sentence is minimized, and they derive a lower utility score. Of course, if both rat one another out, they serve the maximum time.

It's About Human Interaction: Selfish Motivation or the Common Good?

Game theory is used widely to study human interaction and understand human motivation. Game theorists pore over the data and possibilities ad nauseam. The Prisoner's Dilemma is one example of how psychology generates a broad spectrum of outcomes.

Self-interest generates the highest level of utility but also creates the largest disparity in outcomes. In economics, these types of situations are known as public goods dilemmas. Positive and negative externalities exist when public services are provided. For example, streetlights are available for everyone, even if you don't pay for them. However, the City Council may levy taxes and other charges to residents for those streetlights even if visitors from out of town enjoy the benefits at no cost to themselves. Another example is a bridge, highway, or overpass that greatly benefits all who use these structures.

Who Benefits and Who Loses?

However, cost and construction are two issues people would rather not have on their shoulders. Once again, this selfish interest of receiving and not contributing towards public goods characterizes the concept of game theory in the economic sense. The pursuit of selfish objectives versus the common good lies at the center of all problems related to game theory. Another interesting component of game theory lies in the actions when the same or similar players come together to compete again. Will their behavior be modified, or will it be the same? These interesting behavioral questions are easily explained by game theory in the sense that utility is highest if personal interests are served – but there's always a caveat. The objective in all instances is to strive for the common good without looking for the proverbial free ride.

The Prisoner's Dilemma has various modifications, but they are all centered around personal motivation or the common good. The rules determine the possibilities for strategy games between 2 or more players. It's important to point out that gambling theory has nothing in common with game theory. Gambling revolves around uncertain outcomes, while game theory has clearly defined rules and possibilities. A definite element of skill is involved in game theory. Poker is perhaps the most fitting example of a strategy-based game that complies with all tenets of game theory.

The psychology, probability, and mathematics of game theory are astounding. There are always predictive models in play, and concepts such as zero-sum games must be understood when playing poker. Concepts such as perfect information are only relevant as they allow us to understand what happened previously. They do not act as barometers or guideposts for the future. Poker games are all zero-sum games. Strategies are always in play, and optimal strategy usage is the goal. An interesting example of mixed strategy in skill-based games would be found in the game rock-paper-scissors.

Any time one symbol is invoked more than others over the long term, your opponents will seize the advantage and gain one up on you. For example, if you used the scissors more often than one-third of the time, your opponent would use the rock to gain a long-term advantage. Much the same is true with poker and your strategies to gain the edge over your fellow players!