Why Game Theory works

Created2020-08-23Updated2020-08-23

Think Forward

  1. People receive information
  2. People process information and think about it (interaction with belief)
  3. Try to evaluate available actions
  4. Make decisions and take actions

Thank Backward

  1. People take actions based on decisions they made
  2. People make decisoin based on evaluation to action according to information received

Game theory

As the action is limited to a person, it does not matter with the complex processes in their brain.

Now with limited action porson can take, the reward of each action is limited.

People try to predict the reward for evaluating each action. Now we say, the information people received does not matter.

Now we know limited evaluations to each action of a player in game is related to the result.

We can then simplify the process with a theory and we called it “Game Theory”.

For all possible action, there are evaluation results to take the action or not. Both the evaluations and actions are limited, so we can calculate it in way of mathematics.

Information doesn’t matter?

Okay it does, because to know how people evaluate the action, we need to know things they know about the action, reward and consequence.

Conclusion

If we know the payoff of all actions to a player in game, we can predict the result. This is Game Theory.

Good day =)