I am sure most of my readers will be familiar with Game Theory as the most likely studied it at college. If however you are one of the lucky/unlucky ones not to be introduced to the wonderful world of game theory then read on.
What the Hell is Game Theory?
The wikitionary describes Game Theory as:
Game theory attempts to mathematically capture behavior in strategic situations, in which an individual’s success in making choices depends on the choices of others. While initially developed to analyze competitions in which one individual does better at another’s expense (zero sum games), it has been expanded to treat a wide class of interactions, which are classified according to several criteria.
I know what you are thinking, that sounds complicated and boring. Before you give up on it however you might like to look at Yale Universities FREE Introduction to Game Theory course. The course is highly practical and covers the basic concepts of Game Theory. You can download the videos and watch them at your own pace.
Topics Covered
- Introduction: five first lessons
- Putting yourselves into other people’s shoes
- Iterative deletion and the median-voter theorem
- Best responses in soccer and business partnerships
- Nash equilibrium: bad fashion and bank runs
- Nash equilibrium: dating and Cournot
- Nash equilibrium: shopping, standing and voting on a line
- Nash equilibrium: location, segregation and randomization
- Mixed strategies in theory and tennis
- Mixed strategies in baseball, dating and paying your taxes
- Evolutionary stability: cooperation, mutation, and equilibrium
- Evolutionary stability: social convention, aggression, and cycles
- Sequential games: moral hazard, incentives, and hungry lions
- Backward induction: commitment, spies, and first-mover advantages
- Backward induction: chess, strategies, and credible threats
- Backward induction: reputation and duels
- Backward induction: ultimatums and bargaining
- Imperfect information: information sets and sub-game perfection
- Subgame perfect equilibrium: matchmaking and strategic investments
- Subgame perfect equilibrium: wars of attrition
- Repeated games: cooperation vs. the end game
- Repeated games: cheating, punishment, and outsourcing
- Asymmetric information: silence, signaling and suffering education
- Asymmetric information: auctions and the winner’s curse
If you manage to get through these videos you will have and excellent understanding of the fundamentals of Game Theory and it might just help your trading.
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