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THE KGPIAN GAME THEORY SOCIETY
NOVEMBER, 2016
NINTH EDITION
(IIT KGP Chapter of the Indian Game Theory Society)
An unexpected Person in Game Theory
Only two political parties
Reinhard Selteh : An unexpected Person in Game Theory make decisions based on limited information -- to the war in Kosovo and to superpower rivalry in the Persian Gulf during the 1970s. He said the emergence of mass movements can weaken the theory's accuracy, as shown by Ayatollah Khomeini's unexpected rise to power in Iran's 1979 revolution. Reinhard Selten was born on Oct. 5, 1930, in Breslau, a German city before World War II and now called Wroclaw in present-day Poland. His father ran a magazine-lending business, which the Nazi regime forced him to sell because he was Jewish.
Germany's only Nobel laureate in the field of economic sciences, Reinhard Selten shared the prize with John F. Nash Jr. of Princeton University and John C. Harsanyi of the University of California, Berkeley, both of whom developed concepts to explain human behavior through game theory. Applied to fields as diverse as international relations, business-negotiation standoffs and biology, game theory attempts to predict human action based on the conflicting strategies of different parties. The a c a d e m i c s t u dy f o c u s e s l a rg e l y o n experimental methodology that requires participants to respond to various sets of circumstances in real-world situations, such as wars and political stalemates. “Predicting human actions is also a goal of game theory, but it is more the question of, what would rational players do in a game?” Selten said in a 2004 interview with journalist Marika Griehsel. No Gain Selten's work involved refining Nash's equilibrium concept by removing unlikely scenarios in which two or more players have nothing to gain by changing their strategies unilaterally. He applied his theory of bounded rationality -- whereby individuals
yet his father's Jewish roots forced Selten to leave school at 14 and he was refused entry to a trade. They left Breslau and became refugees in the German states of Saxony and Hesse as well as in Austria, where he worked as a farm hand after the war. His life in a village in Hesse required walking 3 ½ hours to and from school, during which he solved mathematical problems, he said in his biography for the Nobel Foundation. 'Strong Influence’ “My situation as a member of an officially despised minority forced me to pay close attention to political matters very early in my life,” he said. “I had to learn to trust my own judgment rather than official propaganda or public opinion. This was a strong influence on my intellectual development.” Selten earned a master's degree in mathematics at the Johann Wolfgang Goethe University in Frankfurt in 1957 and a doctorate four years later. After posts at the University of Califor nia and the Free University in Berlin, he was a professor of mathematical economics at the University of Bielefeld for 12 years. He moved to the University of Bonn in 1984 where he remained for about 30 years.
Selten and his mother were Protestant,
Brexit and the Prisoner's Dilemma As of June 24, 2016, Britain and the European Union face a real-world prisoner's dilemma. Britain's decision to leave the EU by invoking Article 50 means that the country has a two-year period to negotiate its economic and political relationship with the EU. As is expected, both sides are keeping
self-interests in mind when approaching the negotiating table. E.g: Britain seeks to obtain the advantages of the EU's single market with none of the potential costs. Meanwhile, the EU has called for consequences in regards Britain's exit vote, wanting to make an example for any
other country thinking of leaving. However, if both sides decide to work together to come to an agreement that is mutually beneficial, the prisoner's dilemma can be circumvented and both sides can prosper. If both sides hold fast to personal interests, neither side benefits; it becomes a zero-sum game. -Abhijeet
How Price is Decided 1. Keeping prices low, affordable for everyone. Companies often keep profits per customer low, so as to decrease the unit price, which boosts sales figures, and maintains the profits. Reliance Jio was a masterstroke in this case. By keeping tariff rates so low, they made exceptional sales. People actually started buying phones for the SIM, rather than the re v e r s e . T h e c o m p e t i t i o n v i r t u a l l y ended.This is called Market Penetration pricing. Using it, they could now get a bigger
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share of the market.The low tariff and freebies became its USP. By gambling and decreasing the profit per customer, they were able to reach a larger number of users. Ultimately, this shall allow the company in taking prices further less than its competitors.
2. Keeping prices high, out of reach for most Companies sometime hike prices beyond the reach of ordinary people, and thus get profit from the creamy layer.This price skimming is used most often for tech products, which have inconsistent demand. The product generally
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has customers willing to pay a premium price for it, and is way ahead of the competition. the high pricing also helps reach the target audience, keeping it "high-class". Typical high society people need to be unique, so the product has to be a status symbol. All these goals are achieved by price skimming. It's a smart strategy for clever marketers.And we know about the biggest giant that does thisApple. -Danish
NOVEMBER, 2016
THE KGPIAN GAME THEORY SOCIETY
NINTH EDITION
Welcome! Hello everyone! Welcome to the place that's about to become your second home. Welcome to IIT Kharagpur. As you are bombarded with a new life style, with a lot of choices, it helps to know what you are going to get into. So let me give you a short run down about our society. We are called The KGPian Game Theory Society. And it is our dream and aim to promote game theory and with it strategic thinking in our Alma Mater and beyond. I guess the first question in your mind will be "What is this game theory?� Well, game theory is the study of strategic decision making. It means putting yourself in your opponent's position in order to predict his moves, thus maximizing your own profit. Which also means that it is a tool to analyse decisions that you make in your daily life? Right from whether or not to bunk a class to competitive market decisions to wars between nations. And we as a society aim at
promoting this concept throughout the campus and outside of it too. That's done with the formal intro. Founded on 19th August 2010, the KGTS is an initiative by Manoj Gadia. For us, it's more than just a society. It's a place where you can actually put to use your analytical skills. As you will see in some of the articles that have been included in this newsletter, we try and make sense of real life scenarios. We design analytical games which will make you think as you haven't before. Open up new ways to strategize. Think about what your opponent would do and act accordingly. Apart from all this, our society organizes offline as well as online events. We have created and successfully executed the event War of Wits on our own and Nashify in coordination with Kshitij 2014, which are game theory based events for everyone to participate in. Our online game Brethren of the coast was a first of its kind online game
theory event, which saw an in house participation of about 500. We have our newsletter which comes out each semester in which have immersed yourself now! We also regularly post comic strips, having an online reach of over 16k. While in the society you get exposed to every type of job imaginable, right from web designing to content design to sponsorship runs to on stage handling. As I said, everything. You learn everything to know about game theory and how to use it. You get to be a part of something bigger than yourself, a part of a family. - Rhushikesh
The Politician's Dilemma Why would this happen? Suppose this happened in India. Consider your options as a Congress MP. If the BJP supported the bill, and you successfully voted to defeat it, then you would have gifted them a billion dollars(or rupees), enough for them to establish their dominance in Indian politics. So you would have no gain in opposing the bill if the BJP supported it. Now, if the BJP had supported the bill, and you oppose it, then you would stand a chance to get a billion dollars. So, whatever the BJP does, the best option for the Congress would be to support the bill. Now whatever applies to the Congress also applies to the BJP, and, thinking in the same way as detailed above, the BJP too would support the bill whatever the Congress does. So in the end the bill will get passed, and the billionaire doesn't have to pay anybody. Thus both p a r t i e s a re c h o o s i n g s o m e t h i n g d e t r i m e n t a l t o t h e i r interests(restricting sources of funding) even though both could have opposed the bill(losing out on the billion dollars). So, any billionaires up for some major political reform in India? --Varun P D
The prisoner's dilemma is a popular example of game theory. The dilemma is like this: The police are separately interrogating two suspects of a robbery. Each is given an incentive to be the first to confess and a much harsher sentence if he holds out, while the other confesses. Thus each finds it advantageous to confess, though they would both do better if each kept quiet. It illustrates how two rational people are led to take decisions that will harm their mutual interest. This situation can be applied to a variety of real-life situations with surprising outcomes. The billionaire Warren Buffett in an opinion column written for The New York Times, outlines one such situation designed to introduce political finance reform. Like it is everywhere, even in the US, political parties can get a lot of funding from wealthy businessmen if laws friendly to their businesses are passed. To prevent the influence of money in passing bills, Buffett proposed a bill restricting individual contributions to political parties to a maximum of 5000$, and banning all other forms of contributions, including those from businesses, corporations and trade unions. Obviously, such a bill would never be passed, because both parties involved know that they have a lot to lose by passing the bill. But Buffett proposed a twist in the tale: Suppose an eccentric billionaire(E.B.) were to tell each party separately, that in the case the bill is defeated, he will donate 1 billion dollars secretly to the party that had the most votes for the bill getting passed. "Given this diabolical application of game theory, the bill would sail through Congress(the US equivalent of our parliament) and thus cost our E.B. nothing (establishing him as not so eccentric after all)," wrote Warren Buffett in the piece.
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NOVEMBER, 2016
THE KGPIAN GAME THEORY SOCIETY
NINTH EDITION
Sarcasm v/s Jokes In college I would occasionally share edgy jokes to the dorm email list. One day, I asked if anyone minded them. I got a reply like this: “The jokes are so offensive. Please stop hurting my weak, delicate feelings.” At first I brushed it off. I knew this person and he hated political correctness and overly sensitive people. It was sarcasm and a joke….right? I hesitated at the thought he was being serious. It is useful to look at the game theory of the situation. The sender can either intend it to be a joke or serious. In turn, I can either interpret the email as a joke or serious. There are four possible outcomes: –If the sender meant it as a joke, and I took it as a joke, then we both get a good laugh –If the sender meant it as a joke, and I took it as seriously, then the emails would stop until I learned it was sarcasm–then we'd have a good laugh –If the sender meant it seriously, and I took it as a joke, then I'd probably get in trouble with the college's residential staff
–If the sender meant it seriously, and I took it seriously, then we'd both move on without incident In chart form this is: The chart illustrates the dynamics of the game: there are three good outcomes and only a single bad outcome–when a serious statement is taken as a joke. The good outcomes lead to a chuckle or a maintenance of status quo. As a point of matter, the bad outcome can be really bad. I know people who have gotten i n s e r i o u s t ro u bl e w i t h residential staff and they have Their Intent h a d t o a t t e n d s e n s i t iv i t y training to avoid being kicked out of the dorm. Therefore, the game suggests that it's best to take most statements as serious. There is almost no risk to taking statements seriously because either it will be a correct assessment or it will get resolved on a double-check that the other person was sarcastic. This avoids the event of
a blow-up entirely. Conclusion: investigate unclear jokes and sarcasm until you're sure. I wish I had known this in college and in my first office job when I got in a bit of trouble. I hope this post can spare someone else the same hassle. --Prachi
Your Answer
JOKE
SER OUS
JOKE
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SERIOUS
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Duverger’s law With the US elections over , have you ever wondered why there are only two major parties? Is it just a coincidence or is there something more fundamental going on? In fact it is nearly inevitable that the kind of voting system used in the United States will lead to a two party system. This will happen in any election which has the f ollowing characteristics: 1. Voters have a single vote. 2. They vote for a single candidate in their district. 3. The district has one legislative seat available in the election. 4. The winner is determined solely by who has the most votes. Tactical voting What happens in this type of election when a third party enters is that it makes voters start to think tactically.
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Imagine that there are two parties, one right-wing and one left-wing and that in the election the right-wing party is predicted to get 55% of the vote to the 45% for the leftwing party. The right-wing party wins (please don't be offended if you would want the leftwing party to win, they will in a moment!) Now a third party decides to join the race, it is a more extreme right-wing party and 20% of the voters agree with the policies of this new party. If everyone now voted for the party whose policies they believe in then the left-wing party still gets 45% of the vote, the moderate right-wing party gets 35% of the vote (55% less the 20% that move to the more extreme party) and the extreme right-wing party gets 20% of the vote. This means that the left-wing party wins as the right-wing vote is split. In practice voters realise that voting for
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the extreme party, although in line with their beliefs, would let in the left-wing party that they really don't want to win. To avoid this they stick with the moderate right-wing party that they believe can win the election and is closest to their beliefs of the two main parties. Unless a third party can convince enough voters that they really have a chance to win overall then voters won't switch and the two parties will continue to dominate. This idea was first put forward my Maurice Duverger and is now known as Duverger's law. --Gurmandeep
THE KGPIAN GAME THEORY SOCIETY
NOVEMBER, 2016
NINTH EDITION
Of Roads and Games-The Braess Paradox the quality of the road, but also on the density of the flow. If every driver takes the path that looks most favorable to him, the resultant r unning times need not be minimal. Furthermore, it is indicated by an example that an extension of the road network may cause a redistribution of the traffic that results in longer individual running times." Adding extra capacity to a network when the Dietrich Braess, a mathematician at moving entities selfishly choose their route Ruhr University, Germany, noticed the flow in c a n i n s o m e c a s e s re d u c e o v e r a l l a road network could be impeded by adding performance. That is because the Nash a new road, when he was working on traffic e q u i l i b r i u m o f s u c h a s y s t e m i s n o t modelling. His idea was that if each driver is necessarily optimal. The network change making the optimal self-interested decision induces a new game structure which leads to as to which route is quickest, a shortcut could a (multiplayer) prisoner's dilemma. In a Nash be chosen too often for drivers to have the equilibrium, drivers have no incentive to shortest travel times possible. More formally, change their routes.While the system is not in the idea behind Braess' discovery is that the a Nash equilibrium, individual drivers are Nash equilibrium may not equate with the able to improve their respective travel times best overall flow through a network. This is by changing the routes they take. This is because each driver would try to maximize because if individual drivers take different his gain and as a result, the shortcut would be routes, congestion in each route is less, thus congested leading to an increased travel reducing travel time. In the case of Braess' time. On the other hand the longer route paradox, drivers will continue to switch until would be very less congested and as a result they reach Nash equilibrium despite the reduction in overall performance. the travel time would be lower there. However surprising it maybe, we cannot The paradox is stated as follows: "For each point of a road network, let really believe this until and unless there is a there be given the number of cars starting real world scenario justifying this. Luckily, from it, and the destination of the cars. Under there have been instances justifying Braess. these conditions one wishes to estimate the In Seoul, South Korea, a speeding up in traffic distribution of traffic flow. Whether one street around the city was seen when a motorway is preferable to another depends not only on was removed as part of the Cheonggyecheon Have you ever been stuck in a really 'huge' traffic congestion? And hoped that there should have been more roads so that yo u c o u l d h ave t rave l l e d e a s i ly ? Unfortunately, life is not that simple…… If you had always thought that more roads would mean less congestion, you were wrong most of the times……how? Read on…..
restoration project. In Stuttgart, Germany, after investments into the road network in 1969, the traffic situation did not improve until a section of newly built road was closed for traffic again. In 1990 the temporary closing of 42nd Street in New York City for Earth Day reduced the amount of congestion in the area. I n 2 0 0 8 Yo u n , G a s t n e r a n d J e o n g demonstrated specific routes in Boston, New York City and London where that might actually occur and pointed out roads that could be closed to reduce predicted travel times. In 2009, New York experimented with closures of Broadway at Times Square and Herald Square, which resulted in improved traffic flow and permanent pedestrian plazas. In 2012, Paul Lecroart, of the institute of planning and development of the Île-deFrance, wrote that "Despite initial fears, the removal of main roads does not cause deterioration of traffic conditions beyond the starting adjustments. The traffic transfer are limited and below expectations". -Arghyanil
TEAM STRATEGIST Advisor Manoj Gadia
President
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Maunik Desai
Editors Rajat Dhiraj Anubhav Atif Ankur Pushkar
Abhijeet Danish Gurmandeep Arghyanil Aakash
Ph.: 7872826422, 03222-220100
Tech market, IIT Kharagpur THE STRATEGIST
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