Games People Play: Game Theory in Life, Business, and Beyond

"Games" apply to all aspects of life. You're introduced to the subject with a perplexing dilemma, a brief history of the field, and some of its applications, and the three fundamental components of any game: players, strategies, and payoffs.

You gain a deeper insight into the essential building blocks of players, strategies, and payoffs—most of them more complex and subtle than they might appear—along with two new concepts, rationality and common sense.

In seeking the optimal strategies for games in which players take turns and where the full history of the game is known to all, you learn how to construct a "game tree" and are introduced to one of game theory's key concepts: the Nash equilibrium.

You examine four classic two-player games, with each player considering his or her own two choices. Simple though they may be, these games appear at the heart of larger, more complicated games and provide important insights into dealing effectively with others.

You learn a general way of representing simultaneous-move games—where players make decisions without knowing those of others—and acquire valuable tools to solve them. Military and business examples are used to introduce the minimax approach, the iterated elimination of dominated strategies, and the best response method.

Applying what you've learned, you see how a stock bid of $98 can beat one of $102; how insisting you lose a competition can be a winning strategy; and why being blackmailed can be in your best interest.

Many games include aspects that depend on random chance. Probability theory addresses such uncertainties. Using a simultaneous, two-player game, Professor Stevens shows you how to use probability to define the expected (or average) value of a payoff in an uncertain situation.

Can you escape the second-guessing that arises when each player in a two-person game tries to anticipate the other's choice? You learn how every such game, no matter how apparently hopeless, has at least one Nash equilibrium point.

How should we think about mixed strategies? What makes a given strategy "best"? Is there an easy way to determine if a set of strategies is optimal? You explore these questions from a more intuitive perspective and learn how to use the techniques of Lecture 8 in nonzero-sum games.

Can you gain an advantage by moving before the game begins? Such actions, called "strategic moves," can be both effective and dangerous. You learn the three categories of strategic moves—commitments, threats, and promises—and the essential requirement for their success: credibility.

This lecture explains how a player best gains credibility for a threat, promise, or commitment and also explores how these strategic moves are most commonly and advantageously used for deterrence (meant to maintain the status quo) and compellence (meant to change it).

What if some events or decisions are known to only one player? This lecture explores such games of asymmetric information and introduces you to a clever means of analyzing such a game.

This lecture uses examples from mythology, the animal world, movies, card games, and real life to show you how players in a game of asymmetric information try to convey information, elicit it, or guard it.

How do you get others to do what you want them to do, whether in business, politics, international relations, or daily life? You learn how players create an alignment between the behavior they desire and the rewards other players receive and examine what can be done when the behavior being addressed is not directly observable.

Although the games so far have been simplified examples assuming no previous or subsequent interactions, real-life games generally don't work that way. This lecture uses an iterated game of Prisoner's Dilemma to examine the impact of repeated interactions on determining optimal strategy.

Can game theory accurately model real-world behavior? You examine some reasons that its track record for predicting behavior in some designed experiments and some observed behavior has been mixed.

You explore what is essentially a many-player version of Prisoner's Dilemma. Each player's self-interested choices ironically contribute to a social dilemma in which every player suffers, in a scenario equally applicable to topics as diverse as global warming, traffic congestion, and the use of almost any nonrenewable resource.

Classical game theory relies heavily on the assumption of rationality. This lecture examines an evolutionary perspective, in which successful strategies are "selected for" and propagate through time.

You explore how game theory is used in economics—a discipline in which five Nobel Prize winners have been game theorists—by seeing how a monopolist determines optimum production levels and how other competitors affect the situation.

Can game theory evaluate voting systems? You apply what you've learned to several approaches and encounter a theory that no system ranking the candidates can avoid serious problems before you move on to two alternatives that might.

Auctions play a significant role in our lives, affecting the ownership of radio frequencies, the flow of goods over the Internet, and even the results produced by search engines. This lecture discusses some important categories of auctions and examines which is best for buyer and seller.

Cooperative games are ones in which players may join in binding agreements. But how do you identify a division of the payoffs that is reasonable and fair? And what mechanisms persuade members of a coalition to accept their allotment?

In the first of two lectures on Brandenberger's and Nalebuff's practical application of game theory to business decision making, you learn how to construct an analytic schematic of key relationships and discuss the impact of both players and the concept of added value.

You complete your introduction to co-opetition by adding the concept of rules, tactics, and scope to the plays and added value before examining the materials in a broader context, particularly the relevance of game theory to our daily lives.