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Format: Layer, Start, End, Style, Name, MarginL, MarginR, MarginV, Effect, Text
Dialogue: 0,0:00:00.11,0:00:03.89,Default,,0000,0000,0000,,♪ [music] ♪
Dialogue: 0,0:00:08.21,0:00:10.40,Default,,0000,0000,0000,,- [Mary Clare] Today, we're going\Nto learn more about Game Theory
Dialogue: 0,0:00:10.40,0:00:12.56,Default,,0000,0000,0000,,by using it to solve\Na simple problem.
Dialogue: 0,0:00:13.07,0:00:16.29,Default,,0000,0000,0000,,Bob and Al are two\Nprestigious rival magicians
Dialogue: 0,0:00:16.29,0:00:19.22,Default,,0000,0000,0000,,who have developed a new trick\Nthat is quite popular.
Dialogue: 0,0:00:19.22,0:00:21.37,Default,,0000,0000,0000,,They've then agreed\Nto limit performances
Dialogue: 0,0:00:21.37,0:00:23.14,Default,,0000,0000,0000,,so they can charge more.
Dialogue: 0,0:00:23.52,0:00:26.48,Default,,0000,0000,0000,,If both magicians perform\Nonly one show a week,
Dialogue: 0,0:00:26.48,0:00:29.23,Default,,0000,0000,0000,,each will earn $10,000.
Dialogue: 0,0:00:29.62,0:00:32.14,Default,,0000,0000,0000,,However, if one magician\Nbreaks the agreement
Dialogue: 0,0:00:32.14,0:00:33.88,Default,,0000,0000,0000,,and performs five times a week
Dialogue: 0,0:00:33.88,0:00:36.75,Default,,0000,0000,0000,,while the other continues\Nto perform once a week --
Dialogue: 0,0:00:36.75,0:00:40.29,Default,,0000,0000,0000,,that double-crosser\Nwill make $15,000
Dialogue: 0,0:00:40.29,0:00:43.28,Default,,0000,0000,0000,,while the other magician\Nwill make only $1,000.
Dialogue: 0,0:00:43.87,0:00:45.79,Default,,0000,0000,0000,,And if both magicians\Nbreak the agreement
Dialogue: 0,0:00:45.79,0:00:49.98,Default,,0000,0000,0000,,and perform five times a week,\Neach will earn $6,000.
Dialogue: 0,0:00:50.58,0:00:52.93,Default,,0000,0000,0000,,So, what is the Nash equilibrium\Nof how many shows
Dialogue: 0,0:00:52.93,0:00:54.45,Default,,0000,0000,0000,,they will each perform?
Dialogue: 0,0:00:54.76,0:00:57.97,Default,,0000,0000,0000,,The Nash equilibrium means\Nthat no person has an incentive
Dialogue: 0,0:00:57.97,0:00:59.90,Default,,0000,0000,0000,,to change their behavior\Nor strategy
Dialogue: 0,0:00:59.90,0:01:03.63,Default,,0000,0000,0000,,unless someone else changes\Ntheir behavior or strategy.
Dialogue: 0,0:01:04.48,0:01:06.17,Default,,0000,0000,0000,,In order to find\Nthe Nash equilibrium
Dialogue: 0,0:01:06.17,0:01:08.24,Default,,0000,0000,0000,,of Bob and Al's performances,
Dialogue: 0,0:01:08.24,0:01:10.38,Default,,0000,0000,0000,,we have to first analyze\NBob's behavior
Dialogue: 0,0:01:10.38,0:01:13.33,Default,,0000,0000,0000,,based on Al's behavior\Nand vice versa.
Dialogue: 0,0:01:13.60,0:01:15.26,Default,,0000,0000,0000,,It will be easier\Nto track everything
Dialogue: 0,0:01:15.26,0:01:17.47,Default,,0000,0000,0000,,if we fill out a 2-by-2 matrix.
Dialogue: 0,0:01:17.86,0:01:20.51,Default,,0000,0000,0000,,There are two individuals\Nwith two options.
Dialogue: 0,0:01:20.88,0:01:24.47,Default,,0000,0000,0000,,In each box of the matrix\Nwe'll list each person's path
Dialogue: 0,0:01:24.47,0:01:26.13,Default,,0000,0000,0000,,given the state of the world.
Dialogue: 0,0:01:26.45,0:01:29.74,Default,,0000,0000,0000,,So we'll list Bob's path first\Nand Al's second.
Dialogue: 0,0:01:30.25,0:01:32.78,Default,,0000,0000,0000,,So let's first look\Nat Bob's best strategy
Dialogue: 0,0:01:32.78,0:01:34.41,Default,,0000,0000,0000,,based on Al's behavior.
Dialogue: 0,0:01:34.63,0:01:37.96,Default,,0000,0000,0000,,Al will either keep her promise\Nto perform once a week,
Dialogue: 0,0:01:37.96,0:01:41.12,Default,,0000,0000,0000,,or she'll break her promise\Nand perform five shows.
Dialogue: 0,0:01:41.82,0:01:44.34,Default,,0000,0000,0000,,If she cooperates\Nand performs one show,
Dialogue: 0,0:01:44.34,0:01:46.10,Default,,0000,0000,0000,,what is Bob's best strategy?
Dialogue: 0,0:01:46.49,0:01:49.03,Default,,0000,0000,0000,,Again, if we just look\Nat what he stands to gain,
Dialogue: 0,0:01:49.03,0:01:51.27,Default,,0000,0000,0000,,then his best option\Nwould be to cheat
Dialogue: 0,0:01:51.27,0:01:53.02,Default,,0000,0000,0000,,and perform five times a week
Dialogue: 0,0:01:53.02,0:01:56.48,Default,,0000,0000,0000,,and make $15,000 versus\Nperforming once a week
Dialogue: 0,0:01:56.48,0:01:58.35,Default,,0000,0000,0000,,and making $10,000.
Dialogue: 0,0:01:58.65,0:02:03.64,Default,,0000,0000,0000,,Now, what if Al backstabs Bob\Nand performs five shows?
Dialogue: 0,0:02:04.13,0:02:07.46,Default,,0000,0000,0000,,Bob's best strategy here is also\Nto perform five shows a week
Dialogue: 0,0:02:07.46,0:02:10.62,Default,,0000,0000,0000,,and make $6,000 versus\Nperforming once a week
Dialogue: 0,0:02:10.62,0:02:12.82,Default,,0000,0000,0000,,and making only $1,000.
Dialogue: 0,0:02:13.53,0:02:17.69,Default,,0000,0000,0000,,Given that Bob's best strategy\Nis to cheat and perform five shows
Dialogue: 0,0:02:17.69,0:02:22.89,Default,,0000,0000,0000,,regardless of what Al does,\Ncheating is his dominant strategy.
Dialogue: 0,0:02:23.55,0:02:26.37,Default,,0000,0000,0000,,Now, let's look at it\Nfrom Al's perspective.
Dialogue: 0,0:02:26.37,0:02:28.42,Default,,0000,0000,0000,,I bet you can see\Nwhere this is going.
Dialogue: 0,0:02:28.42,0:02:32.05,Default,,0000,0000,0000,,If Bob keeps his promise\Nand performs one show per week,
Dialogue: 0,0:02:32.05,0:02:35.96,Default,,0000,0000,0000,,then Al's best option\Nis to perform five shows.
Dialogue: 0,0:02:36.24,0:02:39.32,Default,,0000,0000,0000,,She'll earn $15,000\Ninstead of $10,000.
Dialogue: 0,0:02:39.56,0:02:41.77,Default,,0000,0000,0000,,And, if Bob decides\Nto break his promise
Dialogue: 0,0:02:41.77,0:02:43.46,Default,,0000,0000,0000,,and perform five shows,
Dialogue: 0,0:02:43.46,0:02:47.18,Default,,0000,0000,0000,,Al's best option is also to cheat\Nand perform five shows
Dialogue: 0,0:02:47.18,0:02:50.46,Default,,0000,0000,0000,,because she'll earn $6,000\Ninstead of $1,000.
Dialogue: 0,0:02:50.90,0:02:54.35,Default,,0000,0000,0000,,Given that Al's best strategy\Nis to perform five times per week --
Dialogue: 0,0:02:54.35,0:02:57.49,Default,,0000,0000,0000,,again, regardless of what Bob does --
Dialogue: 0,0:02:57.49,0:03:00.50,Default,,0000,0000,0000,,this is also considered\Nher dominant strategy.
Dialogue: 0,0:03:00.96,0:03:03.61,Default,,0000,0000,0000,,So if Bob's dominant strategy\Nis to cheat as well,
Dialogue: 0,0:03:03.61,0:03:05.80,Default,,0000,0000,0000,,then the Nash equilibrium\Nin this game
Dialogue: 0,0:03:05.80,0:03:08.82,Default,,0000,0000,0000,,is for both of them\Nto break their promises.
Dialogue: 0,0:03:09.18,0:03:12.46,Default,,0000,0000,0000,,They'll each perform five shows\Nand earn $6,000.
Dialogue: 0,0:03:12.84,0:03:15.52,Default,,0000,0000,0000,,Notice that this isn't\Nan optimal outcome.
Dialogue: 0,0:03:15.93,0:03:18.05,Default,,0000,0000,0000,,It would be so much better\Nfor them to each perform
Dialogue: 0,0:03:18.05,0:03:19.84,Default,,0000,0000,0000,,only one show per week.
Dialogue: 0,0:03:19.84,0:03:21.39,Default,,0000,0000,0000,,They'd earn a lot more money,
Dialogue: 0,0:03:21.39,0:03:23.79,Default,,0000,0000,0000,,and they'd also have a lot more\Nfree time on their hands.
Dialogue: 0,0:03:24.10,0:03:26.49,Default,,0000,0000,0000,,But if we're just\Nevaluating what to do
Dialogue: 0,0:03:26.49,0:03:28.84,Default,,0000,0000,0000,,from the payoffs\Nlisted in our matrix,
Dialogue: 0,0:03:28.84,0:03:33.45,Default,,0000,0000,0000,,it is in both Bob's best interest\Nand Al's best interest to cheat.
Dialogue: 0,0:03:33.45,0:03:35.24,Default,,0000,0000,0000,,Thus, it's the Nash equilibrium.
Dialogue: 0,0:03:35.50,0:03:38.73,Default,,0000,0000,0000,,Of course, there's a real world\Noutside of the matrix.
Dialogue: 0,0:03:38.73,0:03:41.43,Default,,0000,0000,0000,,The world is much more\Ncomplicated than this.
Dialogue: 0,0:03:41.43,0:03:43.28,Default,,0000,0000,0000,,People care about keeping promises,
Dialogue: 0,0:03:43.28,0:03:44.65,Default,,0000,0000,0000,,and they think about the long run,
Dialogue: 0,0:03:44.65,0:03:46.60,Default,,0000,0000,0000,,rather than just week to week.
Dialogue: 0,0:03:46.84,0:03:49.35,Default,,0000,0000,0000,,So think of this example\Nas just a simple
Dialogue: 0,0:03:49.35,0:03:50.94,Default,,0000,0000,0000,,but powerful starting point
Dialogue: 0,0:03:50.94,0:03:53.38,Default,,0000,0000,0000,,to better understand\Nhuman decision-making.
Dialogue: 0,0:03:53.58,0:03:55.71,Default,,0000,0000,0000,,As always, let us know\Nwhat you think.
Dialogue: 0,0:03:55.71,0:03:57.31,Default,,0000,0000,0000,,And, if you'd like more practice,
Dialogue: 0,0:03:57.31,0:03:59.23,Default,,0000,0000,0000,,check out our additional\Nchallenge questions
Dialogue: 0,0:03:59.23,0:04:00.46,Default,,0000,0000,0000,,at the end of this video.
Dialogue: 0,0:04:00.56,0:04:03.36,Default,,0000,0000,0000,,♪ [music] ♪