Intro to Game Theory

Question 1

What is a game in game theory?

Answer 1

Activity where two or more individuals compete to control events for the best outcome.

Question 2

What is game theory?

Answer 2

Study of mathematically determining the best strategy to optimize outcomes using mathematical tools.

Question 3

What does game theory study?

Answer 3

Strategic interactions among rational agents, producing outcomes based on preferences, not always intended.

Question 4

Why is game theory important?

Answer 4

Offers a general theory of strategic behavior, critical in business, finance, defense, politics.

Question 5

How is game theory useful?

Answer 5

Analyzes competitive situations using math, philosophy, psychology, economics for decisions like stock investments.

Question 6

Who created game theory, and when?

Answer 6

Von Neumann, in 1947.

Question 7

What does game theory cover?

Answer 7

Cooperative and non-cooperative situations, modeling strategic policies in business, finance, politics.

Question 8

What inspired Von Neumann’s game theory?

Answer 8

Formalizing bluffing in poker, beyond just probability.

Question 9

What is a game informally?

Answer 9

Interaction where each person’s payoff is affected by others’ strategies/decisions.

Question 10

How is game theory applied in fintech?

Answer 10

Incorporated into algorithms driving fintech applications.

Question 11

What is the purpose of the $100 button game?

Answer 11

Motivates strategic thinking, shows best strategy isn’t always obvious.

Question 12

How does the $100 button game work?

Answer 12

100 students get $100, decide to press a button; each press subtracts $2 from others’ money.

Question 13

What happens if you press the button in the $100 game?

Answer 13

Your losses from others’ presses are halved ($1 instead of $2 per press).

Question 14

What is the payoff if 70 students press the button?

Answer 14

You lose $140 if you don’t press, or $70 if you do press.

Question 15

Why is the $100 game’s optimal strategy counterintuitive?

Answer 15

Nobody should press for all to keep $100, but 30-70% press due to mistrust or greed.

Question 16

What real-world analogy is made to the $100 game?

Answer 16

Nuclear war, where pressing the button could be cataclysmic.

Question 17

How is game theory used in poker?

Answer 17

Drives top-performing poker game engines via powerful computers.

Question 18

What is the $100 bill auction game?

Answer 18

Highest bidder wins $100, second-highest pays their bid but gets nothing.

Question 19

What was the highest bid in the $100 bill auction?

Answer 19

$495, never below $100 over 600 trials.

Question 20

What happened in the 2012 Women’s Badminton Olympics scandal?

Answer 20

Four teams intentionally lost to face easier opponents, exploiting game structure.

Question 21

What occurred in the 1994 Caribbean Cup scandal?

Answer 21

Barbados delayed to score in extra time (counted double) to meet goal difference, defending both goals.

Question 22

What do simple game theory games demonstrate?

Answer 22

Simple games require deep thinking, and best outcomes are often counterintuitive.

Question 23

What is the Guess 2/3 of the Average Game?

Answer 23

Players choose a number (0-100); winner is closest to 2/3 of the average of all choices.

Question 24

What is the Nash Equilibrium in the Guess 2/3 Game?

Answer 24

Zero, as recursive thinking leads to lower numbers.

Question 25

What is the Keynesian Beauty Contest?

Answer 25

Players choose the most attractive person they think others will pick, not their own preference.

Question 26

What is a formal game in game theory?

Answer 26

Consists of players, strategies, payoffs, and knowledge of how the game works.

Question 27

What is a strategy in game theory?

Answer 27

A complete contingency plan defining actions for all possible game states.

Question 28

Who can be players in a game?

Answer 28

People, companies, software agents, or AI.

Question 29

What is the assumption about players?

Answer 29

Rational, choosing strategies to maximize payoff.

Question 30

What is a dominant strategy?

Answer 30

A strategy better than any other for a player, regardless of opponents’ actions.

Question 31

What are payoffs in a game?

Answer 31

Final returns to players, measured in utility or money, ranked by preference.

Question 32

What is a Nash Equilibrium?

Answer 32

A strategy pair where no player benefits by unilaterally changing their strategy.

Question 33

Do all games have a Nash Equilibrium?

Answer 33

No, some have none, others have multiple.

Question 34

What are the basic rules of a game?

Answer 34

Finite players, known actions, choices lead to payoffs dependent on all players’ decisions.

Question 35

What are the assumptions of decision makers?

Answer 35

Have well-specified choices, know end-states, payoffs, and game rules perfectly.

Question 36

What is a normal form game?

Answer 36

A game where players choose strategies simultaneously, with payoffs defined for each strategy pair.

Question 37

What is a bi-matrix representation?

Answer 37

An nxm matrix showing payoffs for both players for each strategy combination.

Question 38

What is a simultaneous game?

Answer 38

Players act without knowledge of others’ actions, moving at the same time.

Question 39

What is a sequential game?

Answer 39

Players know previous actions before making their move.

Question 40

What is perfect information in games?

Answer 40

All players know all prior moves up to the game’s end.

Question 41

What is a symmetric game?

Answer 41

Payoffs depend only on strategies, not on which player uses them (e.g., Prisoner’s Dilemma).

Question 42

What is an asymmetric game?

Answer 42

Players have non-identical strategy sets.

Question 43

What is a zero-sum game?

Answer 43

One player’s gain is another’s loss, with fixed resources (e.g., Chess).

Question 44

What is a non-zero-sum game?

Answer 44

Strategies’ net sum isn’t zero; one’s gain doesn’t mean another’s loss (e.g., Prisoner’s Dilemma).

Question 45

What is a monopoly in business games?

Answer 45

One seller, many buyers, with significant price control.

Question 46

What is a duopoly?

Answer 46

Two sellers, many buyers, limited monopoly power, potential for collusion (e.g., Coke and Pepsi).

Question 47

What is a triopoly?

Answer 47

Three sellers, many buyers, with pricing control (e.g., Sony, Nintendo, Microsoft).

Question 48

What is an oligopoly?

Answer 48

Few sellers, many buyers, limited price competition, often accused of price-fixing (e.g., fast food).

Question 49

What is the Prisoner’s Dilemma?

Answer 49

Two prisoners choose to betray or stay silent; betrayal yields better individual payoff but worse collective outcome.

Question 50

Why do rational prisoners betray in the Prisoner’s Dilemma?

Answer 50

Betrayal always gives a better payoff, regardless of the other’s choice.

Question 51

What is the Nash Equilibrium in the Prisoner’s Dilemma?

Answer 51

Mutual betrayal, as neither can improve payoff by unilaterally changing strategy.

Question 52

Why is the Prisoner’s Dilemma significant?

Answer 52

Shows rational self-interest leads to suboptimal outcomes, highlighting cooperation challenges.

Question 53

What is strategic dominance?

Answer 53

When one strategy is better than another for a player, regardless of opponents’ actions.

Question 54

What is a weakly dominant strategy?

Answer 54

At least as good as others, better in some cases, for a player.

Question 55

How does a dominant strategy differ from a Nash Equilibrium?

Answer 55

Dominant strategy is best regardless of others; Nash Equilibrium depends on others’ best strategies.

Question 56

What is the Oil Production game example?

Answer 56

Saudi and Iran choose 2 or 4 million barrels/day; cooperation (2 million each) yields $40 million each, non-cooperation ($28 million).

Question 57

What is the Matching Pennies game?

Answer 57

Two children show penny sides; Child 1 wins if same, Child 2 if different, a zero-sum game.

Question 58

What is the Nash Equilibrium in Rock Paper Scissors?

Answer 58

Mixed strategy with 1/3 probability for each move, as no pure strategy equilibrium exists.

Question 59

What is the Bank's Dilemma

Answer 59

Banks and fintechs choose to cooperate or not; cooperation benefits both, but non-cooperation limits market progress.

Question 60

What is Algorithmic Game Theory (AGT)?

Answer 60

Intersection of game theory and computer science, designing algorithms for strategic environments.