How to Apply Game Theory Strategies in Prisoners & Dictators

A game is basically a structured kind of play, often undertaken for fun or entertainment, and at times used as a teaching tool. Games are different from work, which is usually done for remuneration, and unlike art, which may be a form of expression or aesthetic elements, games are usually carried out for entertainment. The entertainment value of a game may range from the serious to the comic, from the tame to the outrageous. A game can be a puzzle, a contest, a race, or even a card game.

One of the most popular and commonly played games is the game of Monopoly, whose very name connotes economic activity. In this game three players are placed in a town, each with its own lemon owner, whose task is to produce and sell off property to buy out the competing lime owners. The game can be controlled by the board, where all the actions of the players are decided, from the purchase of property to the sale of it. The game of Monopoly can also be studied theoretically, through the application of the theory of economic competition, the theory of rent-seeking, and even the theory of zero-sum game.

The game theory of the Monopoly set out by David Norton and Bobby Axelrod, introduced a new angle to the game, taking it in a new direction and laying the groundwork for many future innovations. The Nash equilibrium, introduced by Norton and later refined by David Norton and Harry Palmer, assumes that each player is capable of producing a move which he anticipates will give him a net profit, in that his expected income will exceed the cost of his production. The two players then adjust their moves so that they meet at a net benefit.

The game theory can also be applied to other situations. For instance, if two players are building a tower, one player may opt to have a low-rise tower, while the other player decides to build a taller tower. Then, equilibrium would state that the lower-rink tower will yield more income, because it allows for more building activity. In that case, it may be worthwhile to change the strategy used by one player in order to maximize his potential return on investment.

An additional variation of the prisoner and dictator games is to eliminate one player, the “prisoner” in the game. This leaves the two players in a negotiation situation, in which the player who has been banished is trying to persuade his partner to let him go. The outcome of this negotiation can be determined by using some simple mathematics. Assuming that the value of the commodity being traded (in this case, the prison) is proportional to the value of the money being spent (the price of the prison), the value of the commodity divided by the value of the money is the amount of income that the prisoner can expect to receive. Using this knowledge, the dictator and the prisoner can find a way to ensure an optimal level of income from the trading venture.

The prisoner and the dictator games provide a perfect example of game theory. In this case, we observe a clear discrepancy between the strategies that the partners will follow. Although one of them (the prisoner) knows that his partner will use the prison, he still does not know how his partner will make good use of the commodity (the prison). By following a detailed game theory strategy, the player is able to make a calculated decision on the optimal amount of income from the trading venture. This is done by knowing the likely result of the action taken by each partner and using this information, the player can decide on the best action to take, thus maximizing his potential return on investment.

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