Most corporate strategy/competitive strategy problems use game theory on a daily basis. Market entry, retaliation, oligopoly, monopoly, etc. are good examples.
Game theory-heavy industries are the ones in a competitive balance. Think Coke/Pepsi, telecom, etc.
Another way game theory helps is in building the right mindset: you assume that your opponent is just as rational and smart as you, and will be trying to predict how you will react just as you're doing with him/her.
This helps to avoid the failures that result from underestimating your competitors ("we're smarter than them" or "we're better than them").
The standard in antitrust law when evaluating a merger or acquisition is to write down a game theoretic model of competition, estimate the parameters of the model (consumers' tastes, degree of substitutability between products, etc.), and make projections of prices based on those parameters.
More of a high-level mindset, since GT is more of an academic topic.
A lot of the effects described in GT can be learned by practice and observation of human competitive behavior, but studying it gives you a much better understanding of why certain situations happen, or how competitors will react.
The market entry game (retaliate/accommodate) is usually the best example:
Another example is signaling: when you publicly declare that you will match prices aggressively and will never be undercut, that's not actually a threat to your competitors, but a signal that if they keep prices high, you will as well, avoiding a price war.
It sounds like in your examples, ideas and conclusions from GT were used to inform practice (sort of like mental models), but GT models themselves were not explicitly deployed.
Game Theory is first and foremost a quantitative, mathematical theory, and I was wondering in what situations one would actually use the mathematics in production systems or in a mathematical analysis. There are a few replies on this thread that alluded to some applications.
> in what situations one would actually use the mathematics in production systems or in a mathematical analysis. There are a few replies on this thread that alluded to some applications.
I never worked directly with this, but auctions, resource allocation, etc. all use the mathematical tools from Game Theory.
Corporate strategy is too complex and nuanced to build hard mathematical models, so you need higher-level abstractions.
In The Black Swan, Nassim Nicholas Taleb argues that applying game theory to real life situations is one instance of the ludic fallacy. https://en.wikipedia.org/wiki/Ludic_fallacy
Fair warning: N. Taleb is more or less an anti-intellectual. He hates on most formal models he didn't write himself and most of his books are musings on heuristics.
From what I understand, Game Theory is used in "mechanism design", or basically the design of auctions for things like the FCC spectrum auctions, or how facebook / google auction off ad slots.
Not a mathematician so I don't have any great references, but a couple bits in the press about it:
I don't think people actually use Vickrey auctions in practice (although it's likely to use some of the same ideas). Even though it has some really cool properties (you're theoretically perfectly incentivized to bid your real price), it has some weaknesses in real life "imperfect" auctions (as an example, weak to collaboration from what I remember).
But seriously, auctions in general (ad auctions yes, but also many other "kinds" of marketplaces, like zillow for ex) are a super huge application of algorithmic game theory. I took a course in Algorithmic Game Theory with Eva Tardos, and she was constantly being asked by companies like Facebook for consulting on their auctions. Google also has a whole team of algorithmic game theory type people for their ads too.
Facebook actually has a meeting room named after her.
Yes algorithmic game theory is what I'm getting at. I wonder if you know of any talks about tech companies implementing game theory algorithms in production systems? You mentioned Facebook but they don't seem to have any talks at conferences on the topic. What other companies do you know that implement game theory algorithms?
The "novelty" behind "Generative Adversarial Networks" (GANs), a very popular deep learning network, is based on Game Theory. It's a "game" between a Generator and a Discriminator networks where one try to fool the other. The Generator tries to fool the Discriminator by producing output the Discriminator can't distinguish between fake or real.
You can find real-word applications for GANs (specially the Pix2Pix variety) in a lot of domains.
Not myself (well one of the below applied to me at a brief point in my career), but here are cases I know of.
Google, Facebook, and many others use mechanism design (which roughly counts as game theory) to design ad auctions which automatically run as users run searches and load pages. That must be the biggest application of game theory in running code. Auctions are popular applications of game theory in other places, particularly the FCC spectrum auction which involves running code.
Game theory, of a kind, underlies "match" code that assigns medical residents to hospitals, and students to highschools in some school districts in the USA.
Game theory has actually been used to design security schedules for 'national security' in places like airports and the Coast Guard -- this research was led by an effort at USC.
Game theory is used in the design of prediction markets, which are often deployed within companies (though probably they don't need to do additional theory to deploy the markets to their application).
There is a lot of crowdsourcing at scale going on in semi-automated systems, and a lot of research on game theory in crowdsourcing, but I don't know how much that research gets implemented.
If Uber and Lyft aren't using a bit of game theory to set prices, and hopefully also think about incentives when assigning routes, then they're crazy. But perhaps they're using more "economics" than game theory.
Game theory has been used to study social voting sites and "contests" like reddit, hackernews, stackoverflow, quora. However, I don't know if any of the designers of these sites are explicitly using game theory.
Thanks, this is a good list. It sounds like there aren't a whole of cases where game theory is explicitly implemented in code, but there are some.
The reason I'm interested in explicit implementations in code as opposed to theoretical narratives is because actual implementations have to deal with the not-so-nice cases in the real world, i.e. unaccounted-for interactions, stochasticity, flat-out incorrect conclusions, etc. (there are however some deterministic problem domains where the above aren't issues, and I'm curious to learn what these are). Every model is a simplification, but game theory models usually have less correspondence to reality than most hence my curiosity. Game Theory is often thought of to have broader applicability than it really has (due to hype). My interest is identifying those domains where game theory actually "works".
I know it's being used to decide where to place random controls in LA airport, day to day. If the controls were in the same locations, the bad guys would just avoid them, but you don't want the completely random either because some areas have higher throughput, or something like that. Lookup Milind Tambe for more details. They also augmented the technology with psychology considerations. Check if there is a video of a presentation from Tambe on the subject: it's fascinating!
I’m an applied mathematician that eventually became a macroeconomist by way of game theory.
The answer to your question depends very sensibly on what you mean by the terms you use. Certainly various kind of game theoretic solutions to problems are used daily everywhere, from auctions on eBay, to what kind of policies to adopt in government, to how HFT hedge funds choose their positions, to what captains of industry choose to do in their boardrooms.
Since this is a technical environment, I’ll suggest you take a look at Game Theory for Wireless Engineers which applies Game Theory to the environment of self-interested nodes competing to get the best signal they can on a network that is a commons.
I wasn't too clear in my verbiage, but I guess by "applied" I mean actual game-theoretic computations (what is known as algorithmic game theory) being implemented in code, as opposed to a broad allusions to canonical problems like the Prisoner's Dilemma.
Game Theory for Wireless Engineers is interesting, and I wonder if this is actually being applied in industry, or if it is in the realm of potential application?
Yes, it is really used explicitly by algorithms employed by HFT funds, any system that explicitly or implicitly works with or through auctions, and by cellphone tower management systems. One could also argue that the Byzantine Generals Problem’s solution (the much vaunted blockchain of cryptocurrency lore) is game-theoretic in nature so the whole bitcoin & cetera crowd/craze (spending on your perspectives on the matter) could be considered to be founded upon the application of Game Theory of the algorithmic (computable) variety.
Perhaps there are real world scenarios not totally unlike those from game theory. You can imagine situations like the prisoners' dilemma, where maximizing each individual's expected benefit from taking some action is suboptimal due to no means to cooperate.
Define "applied." Researchers in economics and political science use it to understand all kinds of things, does that account? The Rand Corporation probably had an influence on real-world military policy during the cold war with it...
When big corps buy small startup just to kill it off because it might eat into their cake or because their competitor might buy them, that's game theory.
You've described a situation. A situation itself is not a game theory. A situation might lend itself to being modelled using techniques from game theory, but you've not pointed at why.
Someone could equally say the situation you described is 'strategy' or 'design' or 'product management' and it would be equally enlightening.
Game theory-heavy industries are the ones in a competitive balance. Think Coke/Pepsi, telecom, etc.
Another way game theory helps is in building the right mindset: you assume that your opponent is just as rational and smart as you, and will be trying to predict how you will react just as you're doing with him/her.
This helps to avoid the failures that result from underestimating your competitors ("we're smarter than them" or "we're better than them").
Disclaimer: I work in strategy.