Game Theory

I’m taking my Economics final tonight, and there will probably be a lot of questions on game theory, as my Professor really seems to like that subject. In the lecture notes, he’s got a hypothetical game involving studying for the exam. It’s a little ironic to be studying for the final while doing a practice problem that discusses the outcomes of NOT studying for the final. He sets up the example as follows:

– students are graded on a curve against the class, so they can collude and not study, thus the entire class will do poorly on the exam, and the curve is higher

– one student could “cheat” by studying, and therefore score well on the exam, thus hurting the curve for the rest of the class

– there’s different payoffs for studying or not studying, and if you’re the one student that opts not to follow the agreement to skip the study session and score poorly on the exam to boost the curve, you stand to profit nicely by making a high score after studying for the exam

Basically, when you play the game, you find out that even when all the students collude not to study and boost the curve, it’s actually in someone’s best interest to study, score well, and throw the curve. Thus, if we all assume that one person will study and mess with the curve, we should make sure that we’re the one. Effectively, everyone ends up studying for the exam, since we all think we’re going to be the exception. It’s a great theory to show students why they should study for the exam 🙂 It’s similar to the prisoner’s dilemma, where police tell each suspect their options for confessing, and they end up both confessing because they have an incentive to deviate from their original agreement to both refuse to confess.

Game theory is much more fun that the regular supply and demand curves, but it gets a little complicated. Maybe I’ll post more games after the final… fun brain teasers for all my readers!

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