The Extraordinary Power of Negotiations in Game Theory

By Rolando José Olivo

The Game Theory rightly justifies that the strategies, tactics and actions do not depend solely on the rational-optimizing behavior of agents and the competition in markets, rather they are strongly influenced by the possible behavior of others.

Likewise, this Theory has been analyzed through emblematic examples such as the prisoner's dilemma and the trolley dilemma, which apply to everyday situations.

It should be noted that the strategic essence and principles of the Game Theory guarantee that the parties must cooperate to achieve the best possible agreement or implement an escape route. Therefore, the Game Theory is aligned with the integrative approach of negotiations (win-win), being undoubtedly that the complex human behavior and the extraordinary power of negotiations complement this Theory.

• Language: English
• Publisher: Rolando José Olivo
• Release date: Nov 27, 2019
• ISBN: 9780463099667

Rolando José Olivo

[e-mail] Instagram: @rolandojolivo Systems Engineer with 3 postgraduate degrees: Master's Degree in Applied Economics, Diploma in General Management and Specialization in Management of Social Programs (Summa Cum Laude). Work experience in companies in the oil sector, occupying these positions: Planning and Logistics Manager, Project Coordinator, Financial Advisor and Consultant. Consultant in the economic and financial area. Writer of books on economics, management, self-help, novels and Christianity, among others.

Book preview

I. INTRODUCTION

The Game Theory is extremely interesting and fascinating. Although it is an arduous, difficult and complex issue that isn´t intuitive; it is essentially microeconomic and transcends the political and macroeconomic level.

Moreover, this Theory is integrated with the Consumer Choice and the Producer Behavior Theory, considering that it justifies how the strategies, tactics and actions do not depend solely on the rational-optimizing behavior of agents and the competition in markets; rather they are powerfully influenced by the possible behavior of others, in the face of events or other people's reactions. In the same way, this Theory explains why strategic thinking prevails over the optimizer one, surpassing the Neo-Classical Microeconomic Theory and even justifying difficult decisions (better known as escape routes) when there is no possibility of achieving appropriate solutions.

Although the purpose of this publication is to provide an overview of the dynamics of Game Theory, considering the complex human behavior and the close relationship of this Theory with the negotiation processes.

In this regard, this book is divided into the following chapters:

II. The Complex Human Behavior.

III. The Background of Game Theory.

IV. The Principles of Game Theory.

V. The Emblematic Examples of

Game Theory.

VI. The Extensions of Game Theory.

VII. The Antithesis of Game Theory.

VIII. The Extraordinary Power of Negotiations.

The Chapter II. The Complex Human Behavior is subdivided into these sections: a) II.1 The Essence of a Human Being (What is a human being?), b) II.2 The Human Needs (What are they and why are these unlimited? ), c) II.3 The Human Egoism-Mimetism (Why do we yearn for what others have?), and d) II.4 Conclusions on the Essence of a Human Being.

It should be noted that the attitudes and the human behavior are complicated, in part because the human beings are rational, emotional, have countless virtues and adverse qualities, are an inexhaustible source of needs and are also prone to wish possessions and successes of others. In this regard, glimpsing the complex human behavior is a relevant step that contributes to understand the Game Theory.

The Chapter III. The Background of Game Theory has these parts: a) III.1 The Conception of Game Theory (What is its essence?), b) III.2 The Consumer Choice Theory (What are its main premises?), c) III.3 Game Theory vs. Consumer Choice Theory (Why does the first Theory integrate with the second and far exceeds it?), d) III.4 The Producer Behavior Theory (What are its main premises?), e) III.5 Game Theory vs. Producer Behavior Theory (Why does the first Theory integrate with the second and far exceeds it?), and f) III.6 Conclusions on the Conception of Game Theory.

The Game Theory was designed in 1944 by Morgenstern & von Neumann and has been complemented by leading economists and mathematicians (awarded with the Nobel Prize in Economics, due to their respective contributions to this scientific branch). It stands out for its strategic-tactical thinking, which predominates over the rational, so that the maximizing behavior of agents is not only a microeconomic issue, rather, in practice, there are difficult decisions, subjected to the facts and responses of others, which include maximizing benefits and minimizing losses, in short and long-term.

The Chapter IV. The Principles of Game Theory includes these subchapters: a) IV.1 The Fundamentals of Game Theory, and b) IV.2 Conclusions on the Fundamentals of Game Theory.

The main principles of Game Theory, in accordance with its strategic-tactical thinking, are the following: a) make decisions based on the circumstances and behavior of others, b) implement the strategies of non-cooperation or cooperation, and c) reach a microeconomic equilibrium.

The Chapter V. The Emblematic Examples of Game Theory is subdivided into these sections: a) V.1 The Prisoner's Dilemma (What are its bases?), b) V.2 Applications of the Prisoner's Dilemma (How this works in real life?), c) V.3 Conclusions on the Prisoner's Dilemma, d) V.4 The Trolley Dilemma (What are its foundations?), e) V.5 The Solution to the Trolley Dilemma (How to solve it satisfactorily?), f) V.6 Applications of the Trolley Dilemma (How does it work in real life?), g) V.7 A Real Case of the Trolley Dilemma (How did the trolley dilemma appeared during the US financial crisis 2008-2009?), and h) V.8 Conclusions on the Trolley Dilemma.

Certainly, the Game Theory has been analyzed by emblematic examples such as the prisoner's dilemma and the trolley dilemma.

In the first, there are two detainees for committing a misdemeanor, who are interrogated separately. Each prisoner must decide between not cooperating (accusing) or cooperating with the other (not accusing). In the long-term, only two equilibriums are possible: a) the least optimal (both betray each other, non-cooperation), and b) the optimal (no one confesses, mutual cooperation).

While in the second, a trolley goes straight to run over five people tied on the rail. However, if the switch is activated to change this route, the trolley will run over a person, tied in the other way.

In this situation, the traditional options are not viable, and it is necessary to propose a third option, in order to cooperate with all those involved, which has considerable risks. For this reason, the Game Theory demonstrates that there is always a third non-traditional option, more political than technical, whose favorable results must be materialized in the long-term. Likewise, the controversial policies implemented by the Federal Reserve (2008-2014) constitute an excellent reference of the application of these guidelines.

The Chapter VI. The Extensions of Game Theory has these parts: a) VI.1 The Auction Theory (What is its essence and what are its foundations?), b) VI.2 Gamification (What is this and what are its premises?), and c) VI.3 Conclusions on the Extensions of Game Theory.

Obviously, there are two relevant applications of the Game Theory (Auction Theory and Gamification). The Auction Theory reveals that the