Analyzing TV Shows Based Around The Famous Notion Of Game Theory

Demystify Game Theory

Imagine you’re a contestant on Who Wants to Be a Millionaire? You’re facing the last question that’s worth big money: One Million dollars. You feel you’ve won it; a slight tinge of adrenaline buzzes through your veins. You feel your knees shivering, your voice shaking. The spotlights beating down on you, loud bass and the audience can be overheard jeering your name under the loud thumping of your heartbeat! You realize you are not the only one freaking out. The producers backstage are sweating bullets. The drama; the tension is breath-taking. Ever believed that you’d come across such a situation in real life? If contestants were winning a million dollars each time, the producers of the show would be long gone and broke now! How do you straddle the thread between risk and drama entwined together in a popular show like ‘Who Wants to Be a Millionaire?’ By perfecting the balance between predictability and risk. It is these high-stake TV shows that have become a focal point for behavioral economists today. Risk-taking under rule-based settings, audience cooperation, and a diverse candidate pool makes game shows natural experiments for validating conditional experiments and arguments of modern economic theory. Economics tuition Singapore can help you understand these concepts to a large extent.

Behavioral game theory analyzes interactive strategic risk taking, decision-making, cooperation, and bargaining using experimental economics. These concepts can be learned in economics tuition Singapore with a good economics tutor Singapore. Using TV game shows for analyzing economic behavior of individual makes use of real-life settings with a weighty economic significance rather than antiquated laboratory experiments. It has come to light that contestants frequently deviate from the ‘unique Nash equilibrium’, often acting too conservatively in fear of an exit from the game. Contrary to the long-held views of expected utility theory, the choices are affected by previous results during the game. Shocks incurred earlier in the game tend to push risk aversion downward while favorable outcomes tend to pull it up, especially when high monetary amounts are at stake.

Risk Influences your Financial Choices

How do you decide which asset to include in an investment portfolio? How much governments should spend on social safety nets? Contemporary Economics is more than neoclassical economics. It’s not just about mathematics.

Suppose you’re down to the last two briefcases: one holding $1 million and the other one, $10 million. The banker pushes a case carrying $450,000 on you. Take it? Deal or No Deal? The Classical economic theory upholds that people with relatively low net worth would bag the offer. Behavioral economists say that’s not always the case! Our response to the choices we face every day depends on the information we have available at a given point in time. Since it is practically impossible to have perfect information before making a decision in real life, the knowledge we possess is termed as ‘Imperfect Information’.

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Microeconomics Versus Macroeconomics

Decisions of individuals and businesses are influenced by how well the economy is doing: businesses are likely to hire more labor when the overall economy is growing. That’s the bottom-up approach. Looking at the same from the top-down approach, the macroeconomy is influenced by a number of factors including decisions made at the household level.

The single-most captivating phenomenon in behavioral economics is human behavior! Human personalities differ. Hence, their cognitive sense and thought processing vary among themselves. Research proves that even when subjected to identical conditions, every individual has an equal probability to come up with a different conclusion to a given situation.

Game Theory Scenario

Suppose there are 4000 commuters who travel from station A to D on a daily basis. The paths A to B and C to D take n/100 minutes if n passengers are travelling through it. Travelling from A to C and B to D takes around 45 minutes.

What route should you take?

Let’s say 1000 commuters prefer the route: A -> B -> D and the other 1000 take the route A -> C -> D. If an individual commuter, initially taking the A through B route, decides to shift to the alternative (A through C) route, then he spends 45 + 2001/100 = 65.01 as opposed to 45 + 2000/100 = 65 minutes. Therefore, he will choose not to deviate from his initial route and that is a Nash Equilibrium. This is a practically useful example in a real world setting. If you’re struggling with Game Theory and its fundamentals, you can get help now by registering for economics tuition Singapore.

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Brain Teaser

A: “Number of employed people between September and October 2016 increased.”

B: “Unemployment rate has risen between September and October 2016.”

Do A and B contradict each other? It surely seems so. However, both claims are correct!

Answer

It is possible for the number of people in employment and unemployment rate to rise simultaneously, provided the labor force expands. Unemployment rate is calculated by the number of people of unemployed divided by the total labor force (containing both, employed plus unemployed civilians).

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Benjamin Tay

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