Game theory articles (new article usually posted on Tuesday)

Bar game: place the last coaster
In honor of St. Patrick's Day, here's a classic puzzle that works well as a bar game. The only thing you need is enough beer coasters to cover a table. You can ask a server for them or you can bring some from home (beer coasters are cheap) The rules Here is how ...

Bluffing in poker and game theory
I came across an interesting video clip about bluffing in poker. The video clip features mathematician Ken Binmore and concerns betting strategy in poker. Binmore explains why poker pros bluff wildly and suggests the reason why amateurs don't bluff enough. The advice was timely as it actually helped me in my most ...

Excessive punishments and game theory
How much punishment is enough? This is an interesting question for game theory. One of the reference models is the repeated Prisoner's dilemma where players have to use the threat of punishment as a means to achieve cooperation. Sometimes harsh punishment is the right move. I discussed this before in the context ...

Game theory at Denny’s
After a late night out, I found myself at the only eatery still open in the suburbs, the late night haven that is Denny's. When paying for the meal, I noticed a curious offer on the receipt that read something like: If your receipt does not list a food or drink you ...

Las Vegas and game theory: an application of the Prisoner’s Dilemma
The Prisoner's Dilemma is a great example from game theory. The game illustrates why individuals might not cooperate even if it is their best interest to do so. I will briefly summarize the game below, but if you're familiar with the Prisoner's dilemma you can safely skip ahead to the section ...

An evil bidding war
A few readers pointed me to an amusing and devious bidding war featured on the site Gizmodo. You can see the full-sized picture by clicking on the thumbnail image I've posted: The postings suggest an interesting story. Someone has lost her iPod touch and is offering $50 as a reward. And someone ...

NCAA March Madness: why entering more than one bracket is questionable
Before I get into the math, a brief intro for international readers who might not be familiar with this event. The NCAA men's college basketball tournament is a wild event that is often called March Madness. It features a tournament bracket of 64 teams competing in single-elimination games until a ...

How to find cheap gas using game theory
[Update 2-14-09] I'm on vacation; articles will resume in a week or two, or as soon as I recover :) I usually find cheap gas based on experience. In my vicinity, I am aware of gas stations that sell for good prices. A few pennies here or there does not bother ...

A mystery Sherlock Holmes couldn’t solve, but you can
Consider the picture below of bicycle tracks in the mud. Can you figure out which way the rider was going, to the left or to the right? This is not an easy puzzle. In fact, it was such a puzzle that once befuddled the great detective Sherlock Holmes. But the picture provides just ...

How to bet on sports and the Super Bowl using game theory
The 2010 Super Bowl matchup is set. The Indianapolis Colts will face the New Orleans Saints. Already there is much speculation about who is the favorite, which quarterback will perform, which defense or offense will show up, and how these dome teams will play in an outdoor stadium. In fact, none ...

Game theory in Mario Party
Nintendo's Mario Party is a series that is a video game equivalent of board games. Gameplay involves mini-games which might include chance elements like rolling a dice or tactical elements like positioning a character on the right square. These video games consequently include many strategic elements and useful examples of ...

How to avoid the winner’s curse using game theory
I've made a huge mistake--GOB and others from Arrested Development Strangely, in many auctions it is a huge mistake to win. Winning can either be unprofitable or less profitable than expected, kind of like a Pyrrhic victory. The tendency of the winner to overpay is more commonly known as the winner's ...

The bottle imp paradox
I can calculate the movement of the stars, but not the madness of men—Isaac Newton, after losing £20,000 in the South Sea Bubble in 1720 One of my first stock purchases was Lucent Technologies in the late 90s. It was an unusual buy. I only did casual research. And what little ...

The necktie paradox
In the spirit of the season, I thought it would be fun to discuss a Christmas related paradox. The necktie paradox begins as follows (source). Two men are given neckties by their wives as Christmas presents. Over drinks they start arguing about who has the cheaper necktie. They decide to make a ...

Game theory on Colbert Report – mutually assured destruction
I get a kick out of the edgy comedy on The Colbert Report. It's amazing how Stephen Colbert makes a mockery of opposing ideas through caricature and showmanship. Last week Colbert was playfully discussing nuclear arms. He was interviewing Joseph Cirincione, a representative of a nuclear disarmament lobby, the Ploughshares Fund. ...

Game theory in Numb3rs: hide and seek
I occasionally enjoy watching the TV show Numb3rs. The show is about a team of FBI agents who solve crimes with the help of a fictional mathematics professor, Charlie Eppes. During a crime investigation, Charlie comes on the scene to analyze all of the numbers and look for patterns that ...

Charlie Brown and game theory
I grew up watching Charlie Brown and the many Peanuts holiday cartoon specials. At holiday time I am always reminded of the Great Pumpkin, Snoopy's antics, and the cheesy phone conversations. But most of all I am reminded of Charlie Brown and game theory. Most of you will recall the running ...

A math puzzle about splitting land
A father is splitting up land among his two sons in estate planning. How can he divide the land fairly? One approach is to split the land evenly. But even this method can get complicated if we add some realistic assumptions. Today's puzzle illustrates why splitting land can be a mind-boggling ...

The ultimatum game played by children
I came across a cute video about game theory. The video is about an experiment where children are asked to share a pile of chocolate coins. The twist to is they had to follow the rules of the ultimatum game. Specifically, here is how the game worked. One child got to offer ...

Rock, Paper, Scissors: Game Theory in Everyday Life (book review)
One of the most common questions I get is, "Can you recommend an introductory book on game theory-a book without a lot of math?" When I first got this question, I was hard pressed to find an answer. Game theory is a mathematical science, and many presentations can be intimidating. For ...

Fair division in homeowner association fees
I received a great email from Hector regarding game theory: Hi Presh. I enjoy your blog a lot, and recently a situation arose where I think game theory could be applied, so I thought I'd send you an email to see if you have any opinion on it. Here in Mexico, "private" ...

Lying students and games of coordination
It's sad, but many students lie to teachers and get away with it. That's why I love to read about stories where teachers catch the students red-handed. It's even better when the teacher has a little fun with it. Here's one story I especially enjoyed: My dad heard this story on the ...

Game theory joke on being a smart host
I got a lot of positive response from last week's game theory joke, so I thought I'd pass along another joke I received by email (my regular column will return soon). Here's a short and sweet joke about being a smart host. The joke It was a party and the host was getting ...

Game theory joke on telling the truth
A long-time Mind Your Decisions reader sent me the following joke about the strategy of a confession. It's a classic--enjoy! The joke "Bless me Father, for I have sinned. I have been with a loose girl". The priest asks, "Is that you, little Joey Pagano ?" "Yes, Father, it is." "And who was the girl ...

Game theory and pricing cell phone minutes
Why did business X follow strategy Y? While we rarely know the inside thinking, it can be fun to speculate. In the past, I have considered the motivation behind free samples (betcha can't have just one) and price matching (surprise, this might not help consumers!). Recently Rohnel emailed me to consider ...

Game theory links 9-15-09
I've been working on a few improvements and additions to the site (stay tuned), so I put this week's game theory post on hold. Instead, I'm linking out to a few game theory articles. Check them out! The music piracy game and DRM Zeroth Code offers a nice game-theory argument on why ...

Why you can trust a woman with an MBA
My newlywed friend is applying for an MBA. She and I were discussing her application and general factors, like lost salary and tuition cost. But then the conversation shifted towards strategy. How would the MBA affect her employability in a game theory sense? We came up with a few ideas, and ...

Pay cuts or job layoffs—which one is better?
My friend's company sustained substantial losses during this year. The rumor is the company wants to cut costs, either through pay cuts or job layoffs. Which option is better? Apparently the company is unsure about what to do, and it is contemplating a few options, including the following: --Survey employees to see ...

Two-Year Anniversary of Game Theory articles
I was drafting this week's article when it donned on me that it has been about two years since Game Theory Tuesdays started. And I would like to take a moment to reflect on the anniversary, as I did previously for the one-year anniversary. I honestly can't believe this column has ...

How to improve health care using game theory: the Prisoner’s Dilemma
"So take these pills, get a blood report, and see me in a few weeks," said my doctor. I was somewhat taken aback. It was my first physical as an adult. I was healthy overall, but I was being advised to take a prescription drug as a precaution...for the rest ...

Pascal’s Wager inverted: all atheists go to heaven?
Pascal's Wager is one of the most famous arguments for belief in God. Pascal's Wager does not offer proof or evidence for God. Instead, it is an exercise in probability that suggests belief in God is a better than non-belief. But it turns out there are many flaws with Pascal's Wager. ...

How to negotiate a pay raise using game theory–Youtube video
Update: Several of you have pointed out I have blogged about this topic before! For a more advanced discussion, please read my article how to negotiate at your job using game theory. I came across an interesting video that relates game theory to salary negotiations. The video is "How to Negotiate a ...

The Russian roulette puzzle
Can probability theory save your life? Perhaps not in usual circumstances, but it sure would help if you found yourself playing a game of Russian roulette. Today's article covers a couple of variations on the Russian roulette puzzle, which is occasionally asked as an interview brain teaser. Puzzle 1: Single bullet I received ...

Getting rich by counting: the coins in a row puzzle
Yes, getting rich is about saving and earning. But it is also about competition. Winning in the job, stock, and housing markets is about outsmarting opponents and thinking strategically. In such games, it is often important to make the right move before the action begins, as the next puzzle illustrates. The ...

The flu and game theory
The current swine flu scare is a reminder that the flu is a fierce disease. New strains can develop quickly and disarm populations. One only has to remember the 1918-1919 Spanish flu which caused anywhere from 20 million to 40 million deaths. Combating the flu is no small feat. It requires ...

Predicting the future of Iran using game theory | Bruce Bueno de Mesquita on TED.com
Game theory is usually discussed in economics contexts, which have been the focus of this site. But the science of strategy can serve well in other contexts too. A few weeks ago my friend alerted me about how game theory was being used to predict political events. One of the ...

Game theory joke: should English be the national language?
This is a sensitive topic, and I'm not entirely sure where I stand. But there are a lot of strategic issues to it that are fun to discuss. For now, I'll just open the topic up. Recently Mind Your Decisions reader Tim sent me a joke that shed a new light ...

Game theory and salary transparency
In 1994, shock jock Howard Stern created a public storm and ran for the governor of New York. His campaign was regarded as a publicity stunt, but some worried his radio popularity would convert into votes and make a mockery of American politics. Luckily, the fears never materialized. Stern dropped ...

Game theory roundup (2/10/09)
My apologies as I didn't have time to write my usual game theory column. I hope to return to full speed by next week. In the meantime, I've been reading a lot of game theory articles and I've assembled a four of my favorites. Hope you find them as enjoyable as ...

The omnivore’s next dilemma | Michael Pollan talk on TED.com
In game theory, perspective matters. Good strategy depends not only on your actions, but also on how opponents perceive and react to them. You must understand how other people think in order to analyze situations like bike accidents, assigning work in an office, or planning a bank robbery. This works ...

Is it better to play your strength or your weakness? Finding the right mix
Top ranked tennis player Rafael Nadal seems to win by surprising opponents with his unexpected left-handed spin..but perhaps even more surprising is that Nadal is naturally right-handed! It might be fair to say that Nadal's success stems not just from his bulging muscles, but also from his ability to surprise opponents. ...

Game theory joke on being dumb
Mind Your Decisions reader Scott sent me the following joke which offers a unique perspective about being dumb. Enjoy! The dumbest kid in the world A young boy enters a barber shop and the barber whispers to his customer, "This is the dumbest kid in the world. Watch while I prove it ...

4 tips for winning in a game of chicken
The game of chicken is often told through a story about reckless teenagers. In the classic game, two teenagers are driving towards each other on a crash course. The point of the game is to overcome fear and stay on course. The driver that gets scared and swerves away is ...

Fair division and game theory in a Jif Peanut Butter commercial
I was recently pointed to a Jif Peanut Butter commercial that touches on game theory. It deals with a mom trying to resolve a dispute between her two kids and the last slice of bread. Here is the commercial on Youtube (my transcription of it follows): Link to Youtube video Jake: Mom it's ...

Why the secret to speedier highways might be closing some roads: the Braess paradox
During the holiday season, several roads in my town were temporarily closed due to flooding. I was naturally worried how the road closures would affect traffic. But in the end, my fears were unfounded. Not only was traffic mostly unaffected, I often found my travel times were reduced! This experience made ...

Game theory in the news–the financial crisis, Macs and viruses, the bus-wait formula, and more…
[Update: Welcome readers from Simoleon Sense] I'm on vacation through the end of the year so I'm mixing things up. I've been seeing a lot of good articles on the web about game theory and want to share them with you. Enjoy and happy holidays. (If you're looking for more to read, ...

Why Toyota wants GM to be saved—a game theory case study
Here's the latest twist in the auto bailout: Detroit's Big Three aren't the only automotive companies that want to see the government step in with some much needed financial help. Overseas automakers, most notably Toyota Motor, all endorse some form of federal aid to keep General Motors, Chrysler LLC and possibly Ford ...

A math problem that might help you win one million dollars
Louis-Charles just won $1 million dollars...for making a few sports picks. The details are the 31-year old package handler correctly made 25 picks in a row before anyone else in ESPN's Streak for the Cash game. The most important part of the game was that it emphasized streaks, also known as ...

Manage your career like a professional athlete: 4 strategic lessons from LeBron James’ free agency
[Update: Title and text edited to reflect a new idea that hit me unexpectedly] The old rules at work have been rewritten. Company loyalty is vanishing and competition has never been tougher. New rules call for a revised way of thinking, and Stephen M. Pollan and Mark Levine in Die Broke ...

16 fun applications of the pigeonhole principle
[This article is included in the 45th Carnival of Math] Mathematical logic can produce some great trivia. Did you know that at every instant, there is a spot in the world where no wind is blowing? It is true, and the proof comes as an application of a fixed point theorem ...

Understanding the winner’s curse
Sometimes winning comes at too high a cost. In such cases, it is the winners that are the real losers. The phenomenon is known as the "winner's curse" and it affects a wide variety of situations, from baseball free agency signings to stock market IPOs. Whether you are an executive in ...

How to negotiate at your job using game theory
My underpaid friend used every trick during salary negotiations to no avail. This year she got the raise she deserved. The trick that finally worked was getting sick. My friend joked the company would only realize her value after she left. By chance, it happened much sooner. My friend became very ...

Game theory and the math of infinity
Many of us have a sense for physical units like 750 mL, 12 ounces, or a six-pack. But what does it mean to have an infinite size? The math is fascinating. Perhaps the most remarkable result is that infinity is not a single size. One can talk intelligently about different sizes ...

Game theory and racism: the Schelling Segregation Model
[update: welcome readers from The Club for Growth] Fidel Castro says America is "profoundly racist." What do you think? His statement made me think about segregation. I thought about racially divided neighborhoods in big cities. I thought about the "racial cliques" I observed among peers at Stanford. I thought about how few ...

Marriage Jokes and Game Theory
I'm on vacation so my regular article will resume next week. In the meantime, I thought it would be fun to share a few jokes somewhat related to marriage and strategy. Hope you enjoy them, and feel free to add your favorite jokes in the comment section. One way to play matchmaker Father: ...

Can a rational person believe in miracles?
Rationality and miracles are seemingly in conflict. Rationality is about reason and natural explanations. Miracles are about emotion and supernatural forces. Can the two be reconciled? My friend sent me a fascinating explanation from The Language of God, a book by Francis Collins, a leader of the Human Genome Project. Collins ...

Game Theory and Voting
Voting is a prized civic duty. But it is also a high stakes competition with clear winners and losers. In this light, voting can be viewed as a contest of strategy. If you want to make your vote count, it is useful to learn the rules of the game. History suggests ...

Ducks know game theory?
Game theory sounds like something only intellectuals would use. After all, technical math is required for academic courses. And many introductory problems border on the bizarre, like learning how to solve a game of “hot or not.” Game theory is famously associated with the RAND institute, a think tank of ...

The Crummey trust and game theory: understanding the grim trigger strategy
My friend never broke curfew during high school. The consequences were too dire. His parents had threatened to cut off his allowance and scale back on helping him pay for college. Years later I would recognize the parents’ strategy as an important game theory concept. They were playing what is known ...

The Game Theory of Stacking Matchups in Your Favor
Baseball pitchers and competition San Diego pitcher Jake Peavy did not like being called soft. On August 13, 2008, one day before a scheduled start, Peavy was brooding about accusations that he was choosing to face weaker opponents. Radio hosts were critical that Peavy had missed facing elite pitchers like ...

Business Drinking and the Dollar Auction Game
Business drinking provides a fun subject for strategic thinking. My friend told me about a telling experience on a business trip. He had visited a bar after a long day only to find members from a competitor company show up as well. The competition greeted him politely and offered to ...

Using Game Theory to Explain Why People Are Superficial
I'm on vacation this week, so I am mixing things up with a fun video I saw recently. The video title is "Using Game Theory to Explain Why People Are Superficial." The setting is a college lecture given by Dirk Mateer, Ph.D. Mateer sets up an incredibly entertaining lesson where students are ...

A Day in the Life of a Game Theorist: A Tribute to One Year of Game Theory Tuesdays
Today I take moment to celebrate the one-year anniversary of “Game Theory Tuesdays.” I can’t believe it’s been a year already and it has been quite the journey. The column started as a mission to show how our daily lives could be improved with math and strategy. I was warned ...

Game Theory in The Dark Knight: the opening scene (spoilers)
The newest Batman movie The Dark Knight absolutely stunned me. Not since Dr. Strangelove has a movie contained so much game theory. A lot of people have focused on a scene near the end of the movie. But there is so much more to see. In fact, I'll be so ...

Game Theory Roundup (8/18/08)
Recently I've come across some amazing articles discussing game theory concepts. I love it when others join the discussion so let's promote them. I'll do my part by linking out more frequently. Please do your part to encourage game theory by reading and spreading the following articles: --Dorian Wales asks Why ...

The Game of Free Food: Why We Should Just Say No
photo by jbcurio How do you shop for food? Whether you realize it or not, every time you enter the store you are engaged in a game with food companies. You want to get the best deals. They want to make the most profit. The game is about dividing the surplus ...

Heart Disease and Used Cars
Why are so many people taking drugs for cholesterol? I pondered this question after reading about a new study on Vytorin: And the results left unanswered whether a drug that has been proved highly effective at reducing “bad” cholesterol—and has racked up $5 billion in sales in 2007 as a result—offers ...

10 Tips for Traveling Safely with Valuables
photo credit: GrooverFW A successful vacation depends as much on safety as it does on activities. The best travel plans can be sabotaged by pickpockets and dishonest hotel staff. Travel risk is inevitable because valuables like money and passports are needed when traveling overseas. So how can you protect yourself? This article ...

Why Patience Pays Off in Negotiations
photo credit: MShades via flickr A family caught my attention in a restaurant. A young kid was keeping his parents busy. He demanded an appetizer because the main course took too long. He then passed time playing video games on his cell phone. Soon he became bored again, so he took ...

How to Use Lies for Good, or Why Honesty Isn’t the Best Policy
image source: karindalziel via flickr Whoever said “honesty is the best policy” had to be lying. Lies have saved many messengers from being shot, and many couples from explosive arguments about body image (“Honey, do I look fat in this? Tell me the truth..."). There’s certainly much to be said about honesty ...

Scientists Use Game Theory to Determine the Importance of Individual Genes
Source: mknowles via flickr How can game theory possibly used in genetics? That’s what I thought when reading about new genetics research. I can’t say I have a grasp on the biology, but after some investigation, I now have a sense of how game theory comes in. I’ll summarize the news and then ...

Voting Power in Israeli Judge Selection and the Shapley-Shubik Index
source: ninjapoodles via flickr How many votes should be necessary for a decision? Is a simple majority sufficient, or should a higher standard be applied, such as a consensus? These are questions and circumstances we all face, whether as a voter or an organizer. Understanding voting theory can help you ...

Why You Might Want to Burn Bridges
Image source: peasap via flickr Forget the advice “never burn bridges.” There are many times that burning a bridge is not just beneficial, but absolutely necessary to accomplish a goal. "Never burn bridges" generally means don't leave a job or relationship on bad terms recklessly. While I agree with this particular ...

How Game Theory Solved a Religious Mystery
image source: marvinxsteadfast via flickr The Bankruptcy Problem A man owes debts of 100, 200, and 300, but dies with insufficient funds to pay everyone. How should his estate be divided? As we all know, there might not be one correct answer. Fair division is a concept that depends as much on logic as ...

Understanding the Stag Hunt Game: How Deer Hunting Explains Why People are Socially Late
It’s customary for people to arrive “socially late” to parties. In my social circles, this means arriving an hour after the stated invitation time. But customary does not mean correct. The practice of being socially late creates inefficiency only a government bureaucrat would be proud of. Arriving late means that people ...

Want to Help A Beauty Pageant Winner Run a Charity Date Auction?
This is certainly one for the law of unintended consequences. I mentioned the idea of auctioning myself for a charity in my article on revenue equivalence to make the narration interesting. Well, lo and behold, this article has turned out to be interesting in a completely different way. The article is ...

How to Deal with Bad Service—Be Reasonably Unreasonable
Being reasonable doesn’t work “And how will you be paying today?” the pizza cashier asked me. I hesitated before I answered. I was being asked to pay full price, even though the store caused a 30 minute delay by burning my original order. I didn’t exactly have time to spare because ...

The Dice Brain Teaser: A Technical Interview Question that Can Help You Solve Problems Better
Today’s puzzle is special. I like it even more than previous brain teasers I’ve discussed, like the monk problem and the hat puzzle. Like the others, this is a technical question sometimes asked during job interviews (hat tip: Reasonable Deviations). But unlike the others, this problem serves as an introduction to some ...

Three Ways to Protect Your Email Privacy Using Low-Tech Encryption (Caesar Cipher, Vigenère Cipher, Three-Pass Protocol)
Emails worry me I wrote half as many emails the day after meeting the company legal staff. I learned that emails are often discoverable in court, and it was rumored company email was being scanned. This whole episode annoyed me, because as a consultant, I enjoyed the convenience of email. But I ...

Why eBay and Craigslist are Similar in Theory: the Revenue Equivalence Theorem
I can be bought. How can I get a high selling price? Imagine for a moment that I was for sale. Let’s say I was selling myself as a date to raise money for charity. There are many factors I might consider to increase my selling price. How I describe myself is ...

Game Theory for Airport Security? It’s Happening: ARMOR at LAX
The Airport Security Game Airports and terrorists are constantly engaged in a game. Airports create security systems and terrorists seek out breaches. The game has several defining characteristics. 1. It is a sequential game (Stackelberg) Airports have to act first. They set up defense systems and secure vulnerable areas. Terrorists have a second mover ...

What is Auction Theory?
Auctions are Everywhere Auctions are so common nowadays that I bet most of you have participated in auctions in the last year. Even if you haven’t, auctions have probably impacted your life indirectly. The cost of the road you drive on, the price of your airline ticket, and where your medical ...

What do You Want to Know about Auctions?
In the internet age, auctions are everywhere. Auctions are used in eBay, Craig’s list, Google Adwords, dating websites, and job websites—just to name a few. Auction theory can help you navigate the uncertainty. You can improve your position as an informed buyer or seller. I’ve used the auction theory to buy ...

The Leaders Dilemma: How to Generate Cooperation at Home or Work
Motivating Joke One I found in my email: A couple in their nineties was having trouble remembering things so they went to their doctor for checkups. The doctor told them that they were both physically fine and advised them to write things down to help them remember. Later that evening while watching television, ...

The Hat Puzzle (A Consulting or Engineering Interview Brain Teaser)
The Hat Puzzle is one of my favorites. This is one of those brain teasers people might ask in an interview for a consulting or engineering job. Here is the problem, as worded by Sara Robinson (this is a good article to read): Three players enter a room and a red or ...

The Speedo LZR Racer Might Make the Olympics Less Interesting
The big news in swimming is about Speedo's LZR Racer suit. The suit was introduced in February and its technological superiority is allowing swimmers to break world swimming records. In just two months, almost 20 long-course world marks have been set from swimmers using this suit. What's the big difference? Here's ...

Manage Your Brand like Michael Jordan: Avoid Gossip Wars and Mutually Assured Destruction (MAD)
Growing up, I wanted to be like Michael Jordan. I think that was the dream of every kid I knew. We wanted the shoes. We drank Gatorade and ate McDonald’s. We stuck our tongues out on the court. Okay, so none of that really worked. But we weren’t wrong about wanting ...

Google and the FCC Spectrum Auction
By popular demand, more game theory! In addition to the Tuesday articles, which have an academic focus, I will occasionally post a bonus article, which will be about game theory in the news. Since the task will involve industry specific knowledge, you'll get less of me and more from experts and ...

Focal Points (or Schelling Points): How We Naturally Organize in Games of Coordination
Bike safety is a big topic. Wear a helmet. Follow traffic laws, like halting at stop signs. Don’t go too fast, and make sure your brakes work. This is all useful advice. It has been beat over my head since elementary school. Nonetheless, it didn’t help me from getting into bike ...

Hotelling’s Game, or Why Gas Stations Have Competitors Nearby
There are hundreds of gas stations around San Francisco in the California Bay area. One might think that gas stations would spread out to serve local neighborhoods. But this idea is contradicted by a common observation. Whenever you visit a gas station, there is almost always another in the vicinity, ...

Winning a “Beauty Contest,” Or How My Game Theory Professor Gambled $250 Teaching a Lesson
Using game theory is like playing high stakes poker. You can predict the right moves, but you can still get burned by surprises. Game theorists often gamble more than just academic integrity and pride. In one very memorable lecture, my college professor staked $250 to teach a lesson about crowd ...

Game Theory scene from A Beautiful Mind
Two Introductory Announcements First, welcome to the Mind Your Decisions “week of skepticism.” All this week I will address misguided or crooked financial advice. The general theme is to be more careful about advice from people who sell you products or don’t consider strategic implications. Especially watch for well-intentioned but poorly ...

Markets Aren’t Perfectly Competitive: The Game Theory of Why a Smoking Ban Might Make Sense
This article will arm you with a powerful critique. In no time you’ll be second-guessing how fiscal conservatives talk about economics. Here’s one of the most common criticisms of a new law: “My opponent supports law X. While I agree with the spirit of law X, I do not think the government ...

Use Randomization to Cut Costs in Security and Enforcement–It Worked for American Airlines
Game Theory 101: keep your opponents off guard. If you can do that, you don’t need to work very hard. Cops know this. They can’t monitor all motorists, so they randomly assign squad cars to high traffic areas. They put empty squad cars on the side of highways. The threat of ...

Make Money By Assuming the Best (Rationality) but Allowing for the Worst (Irrationality)
Some people think game theory is a joke. They say the games are unrealistic and yield poor predictions. I understand the criticism, but I completely disagree with the overall point. I profit tremendously from game theory. I gain an advantage when game theory works. That’s what I usually write about. Today, ...

Arrow’s Impossibility Theorem and The Voting Paradox
Growing up, I couldn’t stand spicy food. My brother loved it. This was a constant source of conflict. If dinner was too spicy, I complained. If it was not spicy enough, my brother complained. This is why separate portions of spicy and non-spicy were typically made. But that was impractical for ...

Dealing With an Auto Mechanic and the Principal-Agent Problem
On a recent lazy Sunday, I planned to get the oil in my car changed. I called a nearby store to check their availability. The salesperson was glad to help me, and he even told me there was a $10 off coupon on the website. I thanked him, went online, and ...

Splitting the bill at restaurants using game theory
[Update: Welcome Lifehacker readers] [Update 2: Welcome Slashdot readers] [Update 3: Welcome Cosmic Variance readers] “We’re going to split the bill,” said the organizer at my friend’s ninth grade birthday party. I didn’t think much of it until I ended up paying $40 for a $10 entrée. I felt cheated because I didn’t ...

The surprise quiz paradox
In high school, a teacher announced he would give a pop quiz during the next week. I just laughed. Tricks are for rabbits, silly teacher—you can’t surprise a rational student. To explain why, I’ll use the technique of “backwards induction,” which I introduced in the ultimatum post. So let’s start from the ...

The Ultimatum Game and The Hollywood Writer’s Strike
Once during college, an annoying person asked me for game theory help. I offered to help even though it interrupted my own work. It was hard to turn down someone who lived in the same dorm. I offered to help, but wanted something in exchange. The person was a teaching assistant ...

How Can I Find True Love Using Game Theory?
Based on the top search results, you could: Learn from religious advice (love is what God says it is) Find your true love’s zodiac sign through a five question quiz (I will love a Taurus) Consider phone counseling (only to realize you are the real problem) Man, what a rip-off. How did these answers ...

Separating Equilibrium: Why Expensive Gifts Aren’t Always Proportionally Better
If you want to give a great gift, you do not need to spend tons of money. In fact, I’d say that many times the more you spend on a gift, the less value you will get. This is not just frugality advice. It is based on a game theory result. ...

The Tragedy of the Commons: Working During Holidays and Why Thanksgiving Almost Didn’t Happen
I will never work during the Christmas holidays again. Not after what happened last year. I was looking forward to the end of the year. A big deadline had passed, and my expected workload involved quantitative modeling, which was both manageable and enjoyable (this is nerdy stuff that I really like). ...

The Strategy of Surprise: Will the Fed Cut the Rate Next Week?
The hot topic in the investing world is whether the Fed will cut the federal funds rate next week. The word on the street is yes, it is basically certain: Federal funds futures show traders see a 100 percent chance of a reduction in the benchmark rate [in December], with a ...

Strategic Commitments: How to Lose Weight and Live up to New Years Resolutions
I went through on a two-year decision and I finally shaved my head last Friday. I got plenty of reactions from family and friends. I am happy with the look and lots of people have supported it. But even supporters have been puzzled: Why now? Why would you shave your head ...

The Non-Mathematical Guide to Fixed Point Theorems and Proving Nash Equilibria Exist
Today, I present a brain teaser and some related trivia for you to talk about during your Thanksgiving celebration. And in the spirit of game theory, you can use the trivia to distract others as you grab more turkey. Problem: The journey of the monk. One morning at 6 am, a monk ...

Understand Counteroffers Through Game Theory and Three Questions
Mahesh asks a great decision problem: I am working at a firm. I get an offer from another firm. I declare my intention to leave. I get a counter offer with very little tangibles and a lot of promises. The promises look enticing. Should I take or leave? How does this ...

Outcome Obsession: The Problem of Mechanism Design, as Demonstrated in Baseball
I discussed mechanism design recently and suggested how it can be applied to solve routine problems. I was thrilled to see that one reader intends to use mechanism design as a parenting tool. I hope the reader will design a good mechanism and succeed in its application. But it would ...

The game theory of buying clothes, and why money tips are often short-lived
I discovered a money tip before I moved to college. I was living in Illinois and it was a chilly September. But I actually needed more summer clothes because I was moving to warmer California weather at Stanford. Since I was shopping out of season, most what I wanted was ...

Using mechanism design to improve your finances…it’s as easy as splitting a Coke
I have to thank my fifth grade math teacher for unintentionally introducing me to game theory. The game theory is hidden in the following extra-credit problem that he asked us: My mother would often give a can of Coke to me and my two brothers and tell us to split it. ...

How can you stop free riders and games of chicken? Try changing the game
Here is some advice you can take to the office: if you aren’t winning the game you are playing, consider changing the game. If you find yourself yelling at people, please stop and think about why people are acting that way. Just asking people to change is hard. Rational people respond ...

3 tips for threatening many people at once
The RIAA won a legal battle on Friday when a Minnesota woman was found guilty of copyright infringement for file sharing and fined for damages of $220,000. Although the award was significantly smaller than the requested $3.9 million plus legal fees, the RIAA considers the case a victory. Is it ...

Why cooperation fails, and how to fix the problem using game theory
Some people criticize game theory (and to some extent economics as a discipline), calling it unrealistic and focusing on selfish behavior. Just check out this comment from a review of James Miller’s Game Theory at Work: You and I both know that in reality, things simply don't work that way between ...

Truels, or how game theory may explain survival of the weakest
In my recent game theory post, I wrote about how seemingly worse employees can get on better projects--if you didn't read it, please do as the answer may surprise you. This strategy really works, and as Joon and Rohomech pointed out in the comments, they implemented the strategy by incorporating ...

The strategy of limiting options: why less can be more
source: antanask via flickr Consider the following situation: John and Tim are both finishing projects at a consulting company and they are ready to be staffed on new projects. Their skill-sets and work ethics are similar, and both are considered team-players. Though they are comparable employees, their projects have been very ...

Game theory on eating at a party with an Indian host
***Small note: India has diverse geographic regions that differ greatly in customs and culture. I use the word “Indian” as a convenience. I am more accurately describing my experience with Americans of Indian heritage and my understanding of the regional culture in Mumbai (the state of Maharashtra).*** I enjoy going to ...

Understanding strictly dominated strategies, and 3 ways this can save you money
The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt–Bertrand Russell A few months ago I was trying to catch a cab in San Francisco on a busy Saturday night. It is quite a game to pick the right spot. The ...

Why those price match guarantees may end up costing you a fortune
This week’s game theory post is motivated by a question from loyal reader JoeP about pricing strategies. If you have a question about personal finances or game theory, feel free to send me a line. Here is what JoeP wrote: An interesting thought stuck me yesterday as I drove by the ...

5 ways to make your threat appear credible
A word of caution: I write this article not to encourage deceit, but to arm honest people with the means for proper defense. There are two kinds of threats: credible and non-credible. A threat is credible if it will likely be followed through. For instance, when utility companies threaten to disconnect ...

Economics: the formal definition of a game
I gave a brief history of game theory in my introductory post. Game theory is about making actions based on what you think others might do, taking into account that other people are acting based on what you might do. The circularity is what makes game theory interesting. For completeness, here ...

What is game theory?
It’s strange when you think about how television and movies affect your life. It was the Teenage Mutant Ninja Turtles that inspired me to take seven years of Shotokan karate. And it was the movie A Beautiful Mind that motivated me to study and discover my passion for game theory. Game ...