What is game theory?

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6 min read

For the world of cryptocurrencies to be what it is today, it has taken many years of development and many mathematical and technological contributions. One of these is “Game Theory“. This was one of the most significant mathematical contributions of the 20th century.

Thanks to this theory we can perform the analysis of numerous problems that without it would not be possible to solve. This makes it one of the most outstanding tools in the development and research of blockchain technology.

It is a branch of mathematics that offers great help in the field of decision making. Game theory focuses on studying how the behavior of an individual or group of individuals relates to the economic system. It is specifically used when costs and benefits are not yet fixed.

History of game theory

The history of this theory dates back to 1928, when the well-known mathematician John Von Neumann decided to publish a series of papers on game theory. These papers became the genesis of the theory and, in turn, one of Neumann’s most important contributions. However, game theory did not start out as what it is today. It became more relevant after the development of an example of a non-cooperative game called “Nash equilibrium“.

 

Nash equilibrium is a game, where the level of success of a strategy is measured by the fact of optimally adjusting its plans and not changing them with respect to the rest of the group. Thus, no user will gain anything if he decides to change his strategy under the assumption that the other users will not change theirs either. 

It was not until after the presentation of this study that game theory began to undergo significant scientific coverage and studies. All this with the aim of studying its capabilities and its impact on other fields.

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What does game theory look for?

Through the analysis of economic situations, this game theory seeks to understand how certain situations can affect an economic system or any other type of system. To get an idea, let’s take an example. This theory can analyze how an oligopoly is able to make decisions that negatively affect a majority group but with much less power. This is how this theory seeks to provide answers and tools to effectively control certain situations.


Studies based on game theory allow us to better understand how cooperation or individualism can affect an economic system. These elements are of great importance in the midst of an increasingly interconnected world and more interdependent economies. It should be noted that game theory and its analysis goes far beyond these situations.

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Types of games in theory

After the boom of this theory, hundreds of specialists have tried to create different games and situations that can be analyzed through this theory. Below we will see some of them and what they consist of.

    • Simultaneous or sequential. Simultaneous games, as the name suggests, are those in which all players can act at the same time. On the other hand, sequential games are those in which one player acts after another.
    • Symmetric or asymmetric. Symmetric games are those in which the rewards and punishments of each player are the same. On the other hand, asymmetric games are those in which the rewards and punishments are different.
    • Of perfect or imperfect information. Games of perfect information are those in which all players know what the others have done before. There are also games of imperfect information. In this case the players do not know this information.
    • Nash equilibrium. These are those games characterized by having a balanced final solution in which none of the users will gain anything if they modify their final strategy while the rest maintain theirs. In these games none of the parties can change their individual decision without being affected.
    • Cooperative or non-cooperative. These cooperative games are characterized as those in which two or more players form a team to achieve an objective. For this purpose, the optimal strategies for certain groups of individuals are analyzed, assuming that they can establish agreements among themselves about the most appropriate strategies.
    • Zero-sum or non-zero-sum games. In zero-sum games, when one player wins, the other loses exactly the same amount. On the other hand, in non-zero-sum games, the value of the winnings for the players varies depending on whether the player has won, lost or tied.

Why is game theory important?

Despite all that we have seen above, game theory has many more applications and greater importance. The application of this theory spans many fields from biology to computer science and even mathematics and of course, blockchain technology.

Nowadays we have great technology in our cell phones, tablets, etcetera. We can notice it in the smart applications we use every day. An example of this are the shopping apps. These apps collect data about our tastes and preferences and thanks to game theory they can carry out their objective with this data.

In the field of economics, banks also use this theory to know how society and markets will react. In this way, the impact of a change or corrective actions is predicted.

As expected, in the world of cryptocurrencies, game theory also plays an important role. One of its main applications is in Proof of Work consensus protocols. In this case miners participate in block mining and confirmation. The goal is, as we already know, to process transactions and verify them. Cryptography interferes in this process. Each miner makes a decision and this is verified and checked by the rest. At the end of the game, the goal of ensuring the security of transactions and that they are carried out correctly is achieved.