The game theory was stated by the man due to his interest in card games, he was a mathematician, a computer scientist, and a physicist, if you guessed him correctly his name was John von Neuman. He is the same man who gave the Von Neusmen architecture on which today’s computers are built. John was interested in card games because he thought that he can develop math around it and the game was similar to how we interact with each other in life, John Neuman thought to develop a theory of life which can be applied in the every life aspects such as love, business, evolution, etc.
So Von Neumann started to develop his game theory. To understand game theory we have to understand what exactly a game is. A game is a combination of players, strategy, and payoffs. The strategy of one player is capable of influencing the strategy of the other player. Like we take the example of chess, in chess the players have to choose the independent strategy depending on the situation that they are facing currently, and these independent strategies are not limited on the board of game we can see them in business or conversation. Everywhere there are strategies to counter the situation. Now comes the payoff, in games, these payoffs can be increased in the score points and ultimately winning of the game and in real life, these can be profits increased in a business and other parties taking decisions in your favor based on a conversation.
There is a famous dilemma example in game theory. For example, let’s say that you and some schoolmates decided to change the grades on report cards, but both of you were caught in the room by the principal and now you were brought into question. You were seated in a separate room and your companion in a different room. You were provided with options of confessing and not confessing of what you were doing in the room and neither of you can know what the other told, this is similar to the strategy in game theory. Now, comes the payoff, the payoff is that if one person confesses and others don’t he will be awarded immunity and will be left alone but his companion, in that case, will have to perform 100 hours of community service, and this situation goes vice versa. Now, if both confess each will be given 20 hrs of community service to perform, and if neither of them confesses they both will be granted freedom without any punishment. Now, one can say that their both not confessing is the best solution possible in this scenario but Von Neumann’s game theory suggests that the best decision in this situation is confessing by both members and this was developed with the assumption of the human behavior in a competitive environment that human will do what is best for him in the particular situation and this can be said for an individual or a group working for a common purpose or even a whole company.
That’s why game theory is so practical because we have experienced this decision making procedure where the people have to work with independent strategy and which can be influenced by other people’s strategy and will make the difference in the payoff. Although game theory gives great insights into human behavior sometimes this can even get complicated and have total opposite results that we may have calculated from game theory. Although we have developed good mathematics for these situations, as it is said that everything does not meet the decision making eye, countless factors can come into play with humans trying to rationalize the situation. As it comes out that maths is complicated but rationality is even more complicated.
After Von Neumann developed his game theory it was improved by the young John Nash who was again a brilliant mathematician and has received a Nobel prize for his works in economics. Nash came up and improvised the game theory that was developed by Von Neumann and because of this reason, Von Neumann agonized over Nash for his role in game theory. Nash came up with a different approach of dominating solution and Nash equilibrium and this was more complicated mathematics but at the end was bringing the same result as the Von Neumann theory was bringing but Nash was able to accumulate more aspects of the problem in his theory than Neumann.