No. 108 · People · Statistics and Probability
Game Theory
Your best move often depends on what others will do, and on what they expect you to do.
In the Almanac
“Von Neumann and Morgenstern”, 1944 · “The UK 3G auction”, 2000
Both stories in full, three ways to use it and where it misleads.
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Questions
What is Game Theory?
Game theory models decisions as games with players, options and payoffs, where each person's outcome depends on the choices of others. It helps explain negotiations, pricing, auctions and cooperation, and why anticipating reactions often matters more than the best move in isolation.
How do you use Game Theory?
To use it, put yourself in the other side's shoes before acting. Look for moves that make agreement their best option too, favor cooperation in repeated relationships, and set your limits in advance in competitive bidding.
When does Game Theory matter?
Game Theory is one of the 60 mental models for people, the situations where you ask: Why do people act as they do, and how do I work with them? Within that, it belongs to “Cooperation and trust”, alongside Cooperation, Free Rider Problem and Pirate Code.
What is an example of Game Theory?
Two stories show it at work: Von Neumann and Morgenstern (1944) and The UK 3G auction (2000). Both are told in full in The Mental Models Daily Almanac, which has two stories for each of its 365 models.
Which mental models are related to Game Theory?
Prisoner’s Dilemma, Nash Equilibrium and Winner’s Curse. Game Theory itself comes from statistics and probability.