Saturday, 23 June 2007

What is Game Theory?

First, it has nothing to do with video games or computer games. (To be honest, I start reading in this area because I thought they're linked)
Game theory, is a theory about decision making involving returns/benefits.
In our daily life, game theory can be applied almost everywhere without us realizing it.

A most common scenario would be when you bargain for goods. (like in lowyat)
While the buyer wants to buy with as low price as possible, the seller would want to sell at as high as possible.

Thats why in shops where the prices are not fixed, seller often puts on a price tag that is much higher than a normal price that they want to sell. So that when buyer bargains with them, they can "lower" the price a give the buyer the feeling that they bought a good deal.

For the buyers, there's an old trick that most people know - walk away. By pretending to walk away, the buyers could see whether the seller is really selling at the lowest price they could offer. If they refuse to further lower the price, it means that it reached the lowest price that the seller could accept. The buyer can just go to another shop and bargain for that price.

You probably very familiar with these situations without realizing its actually applying the Game Theory.

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