There are three
A set of players
Moves the players can make
Payoffs the players might receive
The players choose their moves to maximize their payoff. Each player always assumes that other players are also trying to maximize their score.
Game theory gets interesting, however, only when there is tactical interaction, that is, when everyone
Mathematics dominates much of formal game theory. In an attempt to maximize this author’s book royalties, however, Game Theory at Work keeps the math to a minimum. Fortunately, you can learn most of the practical applications of game theory without using any math more complicated than addition and subtraction. This book does, however, contain many figures and diagrams, and if you skip them you will learn little.
In game theory land people always act in their own self-interest, and consequently everyone lies whenever lying serves their interests. So, how can you make your threat or promise believable when your word is worthless? Chapter 2 considers the credibility of threats and promises.
“A prince never lacks
legitimatereasons to break his promise.”
One summer while in college I had a job teaching simple computer programming to fourth graders. As an inexperienced teacher I made the mistake of acting like the children’s friend, not their instructor. I told the students to call me Jim rather than Mr. Miller. Alas, my informality caused the students to have
The children’s parents were all going to
The children should not have believed my threat, however. After the summer ended, I would never see my students again, so I had absolutely nothing to gain by telling the parents that their children were not perfect angels. It was definitely not in my interest to say anything bad about my students since
It would have upset their parents.
I realized that their bad behavior was mostly my fault because I had not been acting like a real teacher.
The people running this for-profit program would have been furious with me for angering their customers.
Since they were only fourth graders, it was understandable that my students (who were all very smart) didn’t grasp that my threat was noncredible. When making threats in the business world, however, don’t assume that your fellow game players have the trusting nature of fourth graders.
Let’s model the game I
 The Prince (1514), Chap. 18.