| Roger McCain's Game Theory: A Nontechnical Introduction to the Analysis of Strategy
(Revised Edition) is available in Asia now and will be available
in USA, UK, Europe and the rest of the World in October. Should you
require the title for fall term, special arrangements can be made so
please do contact Ms Hooi-Yean Lee (firstname.lastname@example.org).
If you are considering to use this title after fall and would like to
receive an inspection copy, please send your request via World Scientific Publishing Company's website. You may also visit http://www.worldscibooks.com/economics/7517.html for sample chapters.
Meanwhile, at a more advanced level, give some thought to McCain's Game Theory and Public Policy, Elgar, 2010. Part 1, "A Historical and Critical Survey," assesses the literature of game theory particularly from the point of view of the pragmatic purposes of public policy, while Part 2 presents some proposals and research toward a game-theoretic foundation for political economy.
Recent developments in game theory, especially the award of the Nobel Memorial Prize in 1994 to three game theorists and the death of A. W. Tucker, in January, 1995, at 89, have renewed the memory of its beginnings. Although the history of game theory can be traced back earlier, the key period for the emergence of game theory was the decade of the 1940's. The publication of The Theory of Games and Economic Behavior was a particularly important step, of course. But in some ways, Tucker's invention of the Prisoners' Dilemma example was equally important. This example, which can be set out in one page, could be the most influential one page in the social sciences in the latter half of the twentieth century.
This remarkable innovation did not come out in a research paper, but in a classroom. As S. J. Hagenmayer wrote in the Philadelphia Inquirer ("Albert W. Tucker, 89, Famed Mathematician," Thursday, Feb. 2, 1995, p.. B7) " In 1950, while addressing an audience of psychologists at Stanford University, where he was a visiting professor, Mr. Tucker created the Prisoners' Dilemma to illustrate the difficulty of analyzing" certain kinds of games. "Mr. Tucker's simple explanation has since given rise to a vast body of literature in subjects as diverse as philosophy, ethics, biology, sociology, political science, economics, and, of course, game theory."
Tucker began with a little story, like this: two burglars, Bob and Al, are captured near the scene of a burglary and are given the "third degree" separately by the police. Each has to choose whether or not to confess and implicate the other. If neither man confesses, then both will serve one year on a charge of carrying a concealed weapon. If each confesses and implicates the other, both will go to prison for 10 years. However, if one burglar confesses and implicates the other, and the other burglar does not confess, the one who has collaborated with the police will go free, while the other burglar will go to prison for 20 years on the maximum charge.
The strategies in this case are: confess or don't confess. The payoffs (penalties, actually) are the sentences served. We can express all this compactly in a "payoff table" of a kind that has become pretty standard in game theory. Here is the payoff table for the Prisoners' Dilemma game:
The table is read like this: Each prisoner chooses one of the two strategies. In effect, Al chooses a column and Bob chooses a row. The two numbers in each cell tell the outcomes for the two prisoners when the corresponding pair of strategies is chosen. The number to the left of the comma tells the payoff to the person who chooses the rows (Bob) while the number to the right of the column tells the payoff to the person who chooses the columns (Al). Thus (reading down the first column) if they both confess, each gets 10 years, but if Al confesses and Bob does not, Bob gets 20 and Al goes free.
So: how to solve this game? What strategies are "rational" if both men want to minimize the time they spend in jail? Al might reason as follows: "Two things can happen: Bob can confess or Bob can keep quiet. Suppose Bob confesses. Then I get 20 years if I don't confess, 10 years if I do, so in that case it's best to confess. On the other hand, if Bob doesn't confess, and I don't either, I get a year; but in that case, if I confess I can go free. Either way, it's best if I confess. Therefore, I'll confess."
But Bob can and presumably will reason in the same way -- so that they both confess and go to prison for 10 years each. Yet, if they had acted "irrationally," and kept quiet, they each could have gotten off with one year each.
What has happened here is that the two prisoners have fallen into something called a "dominant strategy equilibrium."
DEFINITION Dominant Strategy: Let an individual player in a game evaluate separately each of the strategy combinations he may face, and, for each combination, choose from his own strategies the one that gives the best payoff. If the same strategy is chosen for each of the different combinations of strategies the player might face, that strategy is called a "dominant strategy" for that player in that game.
DEFINITION Dominant Strategy Equilibrium: If, in a game, each player has a dominant strategy, and each player plays the dominant strategy, then that combination of (dominant) strategies and the corresponding payoffs are said to constitute the dominant strategy equilibrium for that game.
In the Prisoners' Dilemma game, to confess is a dominant strategy, and when both prisoners confess, that is a dominant strategy equilibrium.
This remarkable result -- that individually rational action results in both persons being made worse off in terms of their own self-interested purposes -- is what has made the wide impact in modern social science. For there are many interactions in the modern world that seem very much like that, from arms races through road congestion and pollution to the depletion of fisheries and the overexploitation of some subsurface water resources. These are all quite different interactions in detail, but are interactions in which (we suppose) individually rational action leads to inferior results for each person, and the Prisoners' Dilemma suggests something of what is going on in each of them. That is the source of its power.
Having said that, we must also admit candidly that the Prisoners' Dilemma is a very simplified and abstract -- if you will, "unrealistic" -- conception of many of these interactions. A number of critical issues can be raised with the Prisoners' Dilemma, and each of these issues has been the basis of a large scholarly literature:
We will consider some of these points in what follows.
Roger A. McCain