View Single Post
  #5  
Old 12-12-2005, 11:57 PM
AaronBrown AaronBrown is offline
Senior Member
 
Join Date: May 2005
Location: New York
Posts: 505
Default Re: Is Game Theory Applicable Here?

In addition to phzon's excellent reply, I would add that you have to be careful once you deviate from maximizing expected value. It can be rational to deviate, but most people wander into inconsistency and error when they do. Here is one famous example known as Allais' paradox (for which Maurice Allais won the 1988 Nobel Prize). The poker adaptation in my own.

(A) You’re at the final table of a Poker tournament with two other entrants left. There is a $2,500,000 first prize, $500,000 second prize but no third prize. You have the middle stack, the woman on your right has ten times your stack, the guy on your left is down to a chip and a chair. You think there is a 10% chance you will win, an 89% chance you will take second and a 1% chance you will take third. The other players offer a split. You get $500,000. The chip leader gets $2,500,000 and will compensate the short stack out of that. Do you take the split?

(B) Same tournament and prizes, but you now have the short stack. You figure you have no chance at all to win, an 11% chance of picking up the $500,000 and 89% chance of getting nothing. The chip leader offers to settle for second place, taking $500,000 and her chips off the table. The middle stack says he’ll do it if you give up 10% of your chips, then play out for first place or nothing. With this deal, you figure to have a 90% chance of ending up with nothing, and a 10% chance of winning $2,500,000.

First answer honestly what you would do in each situation, then look more closely and I'll bet you've made completely inconsistent decisions in the two cases.
Reply With Quote