Game Theory: A Simple Strategy That Will Change Your Life Forever

This video is sponsored by Boot.dev. Learn backend web development through immersive gamified experiences. Go to boot.dev and use code wonder to get 25% off your first annual plan. You're 23 years old. You just moved into a modest two bedroom apartment with a roommate, a neutral acquaintance you're splitting costs and responsibilities with. To ensure everything is fair and cordial, you both establish who does what in the apartment. When and who takes out the trash, cleans the floors and counters, does the dishes and so on. You determine you'll each do the dishes once a week. You take Sunday, they take Wednesday. Soon, the first Sunday comes around, and, as planned, you do the dishes. Then, the first Wednesday comes, and your roommate does them. This continues for a couple of weeks. Then, on one Wednesday, after coming home late from work, you find the dishes piled up in the sink. You don't say anything. In your generous nature, you assume it's a one-off thing, and your roommate will just do them the next day. When that Sunday comes however, the pile of dishes is twice as high, spilling out of the sink and onto the surrounding countertop. They never did them. You want to tell your roommate that they should do the dishes today. But they aren't home, and haven't been all day. And so, you do them. This keeps things on schedule anyway. When the following Wednesday comes, your roommate does the dishes. All is well and back to normal. That is, until the following Wednesday, when again, late into the evening, you find the sink filled with dishes. You go to your roommate and ask what's going on. They assure you they will do them. You accept this. The next day, however, the dishes are still there, piled even higher. And then the next day, and the next day. You realize there's a problem. When that Sunday comes, you wonder what you should do. Do the dishes, or leave the already giant pile to grow bigger? What precedent have you set? What precedent will you set? Can you reset things? What if you don't do the dishes, and then your roommate still doesn't do them? The kitchen will remain a constant mess. Alternatively, what if you do do them, and soon, you're always doing them, every time? Who are you dealing with here, and how can you deal with them most effectively? You wonder what decision, based on what strategy, you should make. This is a version of a famous thought experiment in game theory known as the prisoner's dilemma, a situation where two people would be better off cooperating, but each person has some incentive to go against the other. In both not cooperating, however, both end up worse off. In this case, the individual incentive is not spending time doing the dishes. The outcome is either a messy kitchen and messy roommate situation, or a clean one. Broadly, game theory is the mathematical study of decision-making and strategies in situations where outcomes depend on others' choices. More specifically, it examines the nature and effects of how conflict and cooperation among rational decision-makers can lead to optimal or suboptimal payoffs. In social situations, in business, in economics, In essence, and in politics, in every interaction, whether it is a science of strategy. between as little as two people or as many as nations, decisions are constantly being made that affect everyone involved. As individuals and collectives, we each possess the power to not only change our own circumstances, but also the circumstances of others, of the world. These decisions and their outcomes can be as benign as who does the dishes in an apartment, to as critical as whether a country and its citizens survive. Game theory suggests that every decision made with a particular aim can, in principle, be represented and understood as a mathematical model. In other words, with a clear goal and defined constraints, a rationally right choice can always be determined. More yet, an optimal strategy can be determined across multiple choices. And through various computer programs and simulations, researchers in the field of game theory have actually found a strategy or an approach and temperament that, under many conditions in society and nature, has proven to consistently be extremely effective. And surprising to many in the field, the strategy is profoundly simple. Even more compelling, it is hopeful. It is something that each of us can apply to our own lives. Before going any further, it's important to note that in the context of game theory, a game is not how we conventionally think of one, though it can also include traditional games. Rather, game simply refers to any interaction that occurs between multiple decision makers where the outcome and payoff of the interaction for each individual depends on the choices made by the others. This can include games like chess and poker, but it also includes nearly everything else Of course, not literally everything, but all direct interactions that occur between individuals or groups that involve competition or cooperation where there is a mutually affected outcome. And this is almost everything. Importantly, however, game theory does delineate two types of interactions, or games. Cooperative and non-cooperative. Cooperative game theory includes dynamics like players on the same sports team, roommates in theory, business partnerships, as well as international alliances and trade agreements. In these cases, goals are shared, resources and information are often freely exchanged, and fairness and mutual benefit is both implied and actively pursued. Non-cooperative game theory, however, is far more prevalent in the world, and arguably much more interesting. In non-cooperative games, there are typically winners and losers, as players act independently in their own interests, making choices intentionally to benefit themselves, potentially at the expense of their opponents. This sort of non-cooperative dynamic intention is often used and simplistically reproduced in game shows. For example, in the late 2000s British game show, Golden Balls, two strangers would sit across from each other and decide whether they wanted to split or steal a large sum of money with the other person. Each person's choice directly affected whether either individual got any money and how much. But neither would know the other's final choice until it was revealed and locked in. If both chose to split, they shared the money equally. If one chose to split, and the other chose to steal, the one who chose to steal got all the money, and the other person got nothing. If both chose to steal, neither person got anything. In these sorts of one-off situations, where one can either split or steal, cooperate or defect, game theory shows us that there is a clear rational choice. What is known as the dominant strategy refers to a choice that provides a player with the best results no matter what the other player does. And this is always the most rational choice to make. The choice is not about what could lead to the best possible outcome, but about choosing for the best outcome no matter what the other person decides to do, since you have no control over that. And so, in Golden Balls, the most rational thing to do would be to always steal. This is because if one person splits, then the other person does better by stealing. If one person steals, again, the other person, in a sense, does better by stealing because they get the same amount as splitting, zero, but are not manipulated or exploited by the other person. Technically, this is what game theorists would call a weakly dominant strategy, since the the literal payoff in this latter situation would be equal to splitting rather than better. Of course, however, life is not a game show. Interactions are almost never one-offs without lingering, continued effects. Decisions are rarely as simple as splitting or stealing, and outcomes are rarely as simple as half, all, or zero. In real life, there is almost always a much greater interplay with time, repeated interactions, uncertainty, leverage, and resources. If someone does or doesn't do the dishes once, that game is not over. The relationship and space are and can be either benefited or strained moving forward. When a business smears or partners with another business, that game is not over. Retaliation or a growth in resources can and will likely follow. When a country attacks, retaliates, or allies with another, that game is not over. Wars can begin or end. Nations can begin or end. With all this in mind, what is the most effective decision-making strategy or approach in temperament and life in general? Is there one? In 1980, political scientist Robert Axelrod set out to test and answer this very question. Using computer programs to model different decision-making strategies, Axelrod orchestrated an experiment. He had leading theorists from various disciplines and places around the world create and submit programs that would compete in the tournament of an iterated version of the prisoner's dilemma. The goal was to submit the best strategy and win. The rules of the tournament were simple. Each player, or program, played a single game against every other player, as well as a copy of itself. In each game, each player had the option to either cooperate with or defect against their opponent. If both players cooperated, they both received 3 points. If one cooperated and the other defected, the player who defected received 5 points, and the player who cooperated If both defected, both received 1 point. Each individual game contained 200 rounds. The player with the most points by the end of all the matchups in the tournament won. In total, 14 programs were submitted, and then Axelrod added one that defected or cooperated at random with a 50% probability each round. Most of the submitted strategies began with cooperation, while others began with early defections. Some players were complex and calculating, probing for weakness, and then exploiting it, like a program called Grass Camp. Some mixed in random moves to utilize confusion and surprise, like a program called Jaws. Others were far more straightforward. Together, the program spanned from what Axelrod referred to as simple and nice, to cunning and nasty. After the tournament concluded, Axelrod, along with many other game theorists, found the results profoundly surprising. He ran the whole tournament again, five times over, to ensure the results were dependable and repeatable. Each time, the results were consistent, and the same winner emerged. A program called Tit for Tat, which was one of the simplest and most cooperative programs of all. To further elevate the complexity and better mirror real-world circumstances, Axelrod conducted a second tournament. This time, there was no defined number of total rounds per game. With it now being a random, unknown number, players could no longer track and calibrate their decisions against a defined endgame, just like reality. This time, 62 program strategies were submitted, and again, Axelrod added one that was random. The results were very consistent to the first tournament. Again, tit-for-tat one. Axelrod and many other game theorists found this extremely surprising, because the expectation was that the winning strategy would be either highly complex, highly competitive, or both. That is, cunning and nasty. And yet, tit-for-tat was generally simple, nice, and forgiving. In terms of specific gameplay, tit-for-tat always starts with cooperation. From there, it always copies its opponent's last move. And so, it continues to cooperate unless or until its opponent defects. At that point, tit-for-tat immediately defects back, and continues to do so unless or until its opponent cooperates again. As soon as its opponent cooperates again, tit-for-tat then forgives, or no longer accounts for previous moves, and returns to cooperating, unless or until its opponent defects. So on and so forth. Interestingly, the results of this strategy equated to tit-for-tat never winning any individual games, since one-on-one it can only lose or draw. But across all matchups and games, it cooperated with enough other players to consistently end up with the highest score overall and win the tournament. Axelrod writes, The Evolution of Cooperation. What accounts for Tit-for-Tat's robust success is its combination of being nice, retaliatory, forgiving, and clear. Its niceness prevents it from getting into unnecessary trouble. Its retaliation discourages the other side from persisting whenever defection is tried. Its forgiveness helps restore mutual cooperation, and its clarity makes it intelligible to the other player, thereby eliciting long-term cooperation. Moreover, almost all top-performing players in the tournaments shared in these similar qualities. And in later simulations with even more realistic chaotic conditions, a more generous version of Tit-for-Tat that occasionally forgave defections instead of reciprocating them proved to be even more effective. Nasty players, on the other hand, seem to often find themselves in defecting wars that led to mutual destruction. Axelrod says, what makes it possible for cooperation to emerge is the fact that the players might The takeaway from this is reasonably clear. In continued non-cooperative competitive interactions like these tournaments, it is often beneficial to, at the very least, try to be nice. To lead with niceness and cooperation. This is not a weakness, but a strength. Conversely, an individual who often leads with or incites defection is more likely to weaken itself and lose over time, even if it initially appears as if they are winning. Moreover, holding grudges Forgiveness is a strength. Of course, however, weakness itself is a weakness. That is, letting someone do you wrong without consequence will lead to being taken advantage of and losing. One's approach to exacting consequence, however, is also important. It must be relatively equal, consistent, and clear, not opaque and manipulative. From a moral and historical perspective, the winning tit-for-tat strategy essentially mirrors an eye-for-an-eye ethos. That is, justice and punishment should be proportional to the harm caused by an offense, but after proportional consequence, balance and cooperation can and should be restored. On a more individual level, it essentially equates to being kind, forthright, and understanding, but never a pushover. Of course, there are problems and limitations both with Axelrod's experiment as well as game theory in general Programs, simulations, and theories can arguably never truly reproduce, model, or assess the true scale and complexity of real-world interactions. Real interactions often involve many people and many issues, many perspectives, many goals, shifting ideas and opportunities, asymmetric leverage and resources, known and unknown information, vast errors and chaos, and perhaps most importantly, they involve the very emotional, sentimental, spiteful, and irrational nature of the human mind. As humans, we feel and hope and believe at least as much as, if not more, than we assess, calculate, and execute. Ultimately, however, game theory teaches us many important things. Perhaps one of the most important being is that every interaction in game is not always about winning. A strategy always focused on winning can actually be the least effective at winning overall, whereas one less focused on always winning can, over the long term, If we want to truly be successful across various areas of life, there are going to be, need to be, many instances of draws and losses. But so long as we continue forward with each new moment and each new interaction, open and willing to try again, ensuring we stand up for ourselves and hold true to our values, while striving to meet and unite with the world around us, we can steadily and surely move toward bigger, more important wins. Wins of cooperation, kindness, and mutual benefit. We can never truly know or control if people will cooperate or defect with us, but we can know and control if we will and why. And we can know that each decision we make will likely influence the nature and outcome of all the games in which we participate, present and future, potentially making or breaking relationships, goals, systems, or even society and the planet. And so, at least for starters, for our own sake, when our day comes, let's be sure we do the dishes. Games are a fundamental aspect of all of life, and so, naturally, our brains are wired to often treat and make sense of things through gamification. 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