Game Theory for Software Developers at Boulder JUG

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Game Theory for Software Developers by Matthew McCullough, Ambient Ideas, LLC

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Matthew McCullough @matthewmccull

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The Big Picture

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4 Basic Elements Players Strategies Payoffs Common knowledge

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Games

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Business

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Economics

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Game theory is...

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Strategic interactive decision making

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Strategy dependent on the choices of others

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Economics as science

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“Good fortune is what happens when opportunity meets with planning” --Thomas Alva Edison

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The Company

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MacroCode

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Consultancy

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Underbid

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Signaling

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Stotting

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Bid Low for the 1st Month

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Build the New Business

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Decision Tree

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C:1 Red 1/2 1:1 Raise 2:1 Meet 2 -2 Pass 1 -1 Fold 1 -1 Black 1/2 1:2 Raise 2:1 Meet -2 2 Pass 1 -1 Fold -1 1

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C:1 Red 1/2 1:1 Raise 2:1 Meet 2 -2 Pass 1 -1 Fold 1 -1 Black 1/2 1:2 Raise 2:1 Meet -2 2 Pass 1 -1 Fold -1 1

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C:1 Red 1/2 1:1 Raise 2:1 Meet 2 -2 Pass 1 -1 Fold 1 -1 Black 1/2 1:2 Raise 2:1 Meet -2 2 Pass 1 -1 Fold -1 1

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C:1 Red 1/2 1:1 Raise 2:1 Meet 2 -2 Pass 1 -1 Fold 1 -1 Black 1/2 1:2 Raise 2:1 Meet -2 2 Pass 1 -1 Fold -1 1

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Bounded Rationality

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Beauty Contest

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Beauty Contest Rules Guess between 1 and 100 Winner has the number at 70% of the average guess

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University Employees

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The Red Button

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The $2 Button: Rules Gather 100 friends Everyone starts with a $100 prize Everyone gets a button If you push, it deletes $2 from everyone else's prize Everyone gets one button push

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appx. 30% push

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Worried about retribution

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The $2 Button: New Rules Gather 100 random players Everyone starts with a $100 prize Everyone gets a button If you push, it deletes $2 from everyone else's prize Everyone gets one button push If you push, you cut your losses in half

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appx. 70% push

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Framed as defense

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Bilateral Anterior Insular Cortex

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What if everyone had a meet and greet in advance? What if everyone knew each other? What if everyone was a family member? Red Button Coalitions?

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Hiring

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Incentives

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Motivating others to do what we want them to with rewards

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Aligning the other player's desires with ours

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credible incredible vs

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Big sale, 80% off for a limited time only!**

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$20 per resume

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$1000 if hired

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One shot?

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Iterative?

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Rules

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Don't push changes after Thursday

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Don't disable your anti-virus software

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Must have 100% test coverage

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Unintended Consequences Some quantity of rules are what make a game playable Don't capriciously create new rules at the last moment

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Scoring for the other Team 1994: Barbados vs. Grenada Must win by 2 goals to advance B2:G1 Goals count double in overtime Grenada began defending Barbados' goal

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Team Colors

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Penny Altruism

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Ultimatum Game

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Ultimatum Game Rules The purse is provided by a bank Players are not allowed to communicate There is only one decision to be made There are 100 strategies

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Alice Bob Bank

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Ultimatum Offer 100 Accept 100,0 Decline 0,0 Offer 99 Offer 98 Offer 30 Offer 10 Accept Decline Accept Decline Accept Decline Accept Decline 99,1 0,0 0,0 10,90 0,0 30,70 0,0 98,2 Alice Bob

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Fair

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70/30 split

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Observed

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Commission

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Between ages of 3 & 5

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Anonymously

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Offer: 1 to 10

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No Way Back

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Strategically removing options

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Prisoner's Dilemma

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Alice Defects Alice Stays Silent Bob Defects -4,-4 0,-5 Bob Stays Silent -5,0 -1,-1

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Dev Tests Dev Shirks QA Tests -1,-1 -1,0 QA Shirks 0,-1 -2,-2

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Testing

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Centipede Game

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100% Test Coverage

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Monty Hall

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Bayes Formula

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Birthday Attack With 26 people in the room, what is the chance that someone has January 1st as their birthday?

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Birthday Attack With 26 people in the room, what is the chance that any two share a birthday?

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Retailer Selection

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Red/Black Cards

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Red/Black Negotiations 23 Red Cards with instructor 23 Cards with students What kind of deal do you hold out for?

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Alice loses three cards

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Red/Black Negotiations 20 Red Cards with instructor 23 Cards with students What kind of deal do you hold out for?

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Acquisition

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No!

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Threat?

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Commitment

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Doomsday Device

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Poison Pill

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Brinksmanship

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Chicken

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What is it? Playing at high stakes By not offering any small response, scaring the other player of the consequences of the big response

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Chicken Best way to play is to throw out the steering wheel But the other player must visibly take notice of that action

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Partnerships

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Incremental value

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Shapley Value

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Factory

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Factory Sizes Small: $60,000 Medium: $90,000 Large: $130,000

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Advertising

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Warranty

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Signaling

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Quality

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Lifetime

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Google Adwords

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Price

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Thomas Schelling

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Schelling points

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Schelling Points Grand Central Station in New York 99¢ on the App Store $39.95 for FPS games DVD releases on Tuesday Comic books releases on Wednesday Theater ﬁlm releases on Friday

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How do they occur? Publicity Competition Frequency Tradition

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Google

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Etsy

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Schelling Number

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Schelling Number Write down an two-digit odd number in which both the digits are different

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Vendor Trouble

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Late

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Fire them?

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We need 10 of 12

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Lemons

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George Akerlof

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Balancing Act Peaches Lemons Peaches Peaches Pay

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Balancing Act Peaches Lemons Peaches Peaches Pay

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Balancing Act Peaches Lemons Peaches Peaches Pay

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Balancing Act Peaches Lemons Peaches Pay

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Balancing Act Peaches Lemons Peaches Pay Lemons

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Balancing Act Pay Peaches Lemons Peaches Lemons

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Balancing Act Peaches Lemons Peaches Pay Lemons

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Grim Trigger

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This is going to be our last project...

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Alice Betrays Alice Co-operates Bob Betrays 5,5 0,5 Bob Co-operates 5,0 1,1

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make it sequential

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Co-operate Co-operate Co-operate Co-operate Co-operate Co-operate Co-operate Co-operate

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Co-operate Co-operate Co-operate Co-operate Co-operate Co-operate Co-operate Betray

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Co-operate Co-operate Co-operate Co-operate Co-operate Co-operate Betray

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Co-operate Co-operate Co-operate Co-operate Co-operate Betray

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Co-operate Co-operate Co-operate Co-operate Betray

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Co-operate Co-operate Co-operate Betray

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Co-operate Co-operate Betray

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Co-operate Betray

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Betray

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Simultaneous Shoe Bidding

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What would you bid for this pair of shoes?

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What would you bid if you only had a 50% chance of getting the other shoe?

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XKCD 601: Game Theory

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Game Theory for Software Developers by Matthew McCullough, Ambient Ideas, LLC

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References: Software Gambit http://www.gambit-project.org/doc/index.html http://www.gambit-project.org/doc/samples.html Game Theory Explorer http://gametheoryexplorer.appspot.com/builder/

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References: Research The Teaching Company: Game Theory Video Course http://www.thegreatcourses.com/tgc/courses/Course_Detail.aspx?cid=1426 Professor Scott P. Stevens, Ph.D. The Pennsylvania State University James Madison University Bookmarks http://www.delicious.com/matthew.mccullough/gametheory Range Voting http://rangevoting.org/TBlecture.html Market for Lemons http://en.wikipedia.org/wiki/Market_for_lemons http://nobelprize.org/nobel_prizes/economics/laureates/2001/akerlof-article.html http://www.springerlink.com/content/h3h8530156276515/ http://hydrogen.its.ucdavis.edu/eec/education/EEC-classes/eeclimate/class- readings/akerlof-the%20market%20for%20lemons.pdf

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References: Blogs Mind Your Decisions http://mindyourdecisions.com/blog/ Game Theory Strategies http://www.gametheorystrategies.com/ Twitter, Barry Hughes https://twitter.com/#!/gamethry

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References: Books Theory of Games and Economic Behavior http://en.wikipedia.org/wiki/Theory_of_Games_and_Economic_Behavior http://press.princeton.edu/titles/7802.html http://www.amazon.com/Economic-Behavior-Commemorative-Princeton-Editions/ dp/0691130612/ref=sr_1_1?ie=UTF8&qid=1310015156&sr=8-1 Rock, Paper, Scissors: Game Theory in Everyday Life http://www.amazon.com/Rock-Paper-Scissors-Theory-Everyday/dp/0465009387/ ref=sr_1_2?ie=UTF8&qid=1310490759&sr=8-2 The Art of Strategy: A Game Theorist's Guide to Success in Business and Life http://www.amazon.com/Art-Strategy-Theorists-Success-Business/dp/0393337170/ ref=pd_bxgy_b_text_c Co-Opetition : A Revolution Mindset That Combines Competition and Cooperation : The Game Theory Strategy That's Changing the Game of Business http://www.amazon.com/Co-Opetition-Revolution-Combines-Competition- Cooperation/dp/0385479506/ref=pd_sim_b_1

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References: People John von Neumann http://en.wikipedia.org/wiki/John_von_neumann Thomas Schelling http://en.wikipedia.org/wiki/Thomas_Schelling John Forbes Nash http://en.wikipedia.org/wiki/John_Forbes_Nash John Harsanyi http://en.wikipedia.org/wiki/John_Harsanyi

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Photo Credits 100 Dollar Bill Roll http://www.flickr.com/photos/85473033@N00/3367543296 Pennies http://flic.kr/p/6ucLDE http://flic.kr/p/6u8BEa Earth http://flic.kr/p/9DTDXi Dice http://flic.kr/p/9g1aZc Cards http://flic.kr/p/4UwZc6 http://flic.kr/p/6FKnGu http://flic.kr/p/4V67rx Happy Hour http://www.flickr.com/photos/beleaveme/3276175127/ Prison http://flic.kr/p/38wBWq

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Other Ideas Bounded Rationality 2-3 event horizon Typing Pooling or separating equilibria Prisoner's Dilemma with an Arbiter Tragedy of the Commons Air pollution Mass transit tickets Overﬁshing Volunteer's Dilemma Witnessing a crime