You may imagine that you are driving on a very crowded lane. You want to drive faster. So you go to a different lane. It seems that the new lane is less crowded. However, two minutes later you find that the previous lane is less busy now. Now you need to make a decision: stay on the new lane or drive back to the previous lane?
Definition: Game theory is the study of strategic interaction among rational decision-makers using mathematical models. It has applications in all fields of social science, as well as in logic, systems science, and computer science.
In simple terms, game theory is used for making correct decisions or presenting optimal strategies so that it helps you to find the best solution.
John Forbes Nash Jr. who made fundamental contributions to game theory won the Nobel Memorial Prize in Economic Sciences in 1994. He is the person who defined Nash Equilibrium. There is a movie which is called ‘ Beautiful Mind’. It is talked about his story. There is a very interesting fragment in this movie. There are 4 boys and 4 girls in a bar near Princeton University. Nash thinks that “if all boys go to that most beautiful girl, she will become very arrogant and the probability to dance with her will decrease. However, if nobody goes to her and she sees that the boys dance with other girls, she will look around and feel bored. Now the probability to dance with her becomes higher.” Game theory provides you a good strategy to pursue a girl efficiently.
Application of Nash Equilibrium in Python.
Example: Say Hua and Lee need to register either Chinese class or Spanish class. Their mother says that :
-if both of them go to Chinese class Lee will get $90 and Hua will get $10,
- if both of them go to Spanish class Lee will get $60 and Hua gets $40,
-if Lee goes to Spanish class and Hua chooses Chinese class , Lee will get $30 and Hua will get $70,
-if Lee goes to Chinese class and Hua chooses Spanish class, Lee will get $20 and Hua will get $80.
Why is Game Theory important to Data Scientists?
Game Theory is also applied in data science territory, for example AI (Artificial Intelligence), deep learning, classification and clustering etc.
Examples of Game Theory in the real world:
- Based on game theory, Armorway data scientists created an algorithm which improved the efficiency of U.S. Coast Guard patrols of real-time events. Thanks to this, the Coast Guard improved patrol efficiency by 60%.
- Nate Silver is an American statistician who applied game theory to predict and analyze that US President Barack Obama will be re-elected. His algorithmic predictions not only brought victory to Obama, but also a victory in analytics.
I believe that as data scientists, it is good to know how to deal with the data and apply Game Theory to give an optimal solution for the business decision makers.
