HE302:

Game Theory & Applica7ons to Social Sciences Assignment Report

Division of Economics Nanyang Technological University, Singapore Topic: 2. Applica>ons of Game Theory

Game Theory is ra7onal. Love is not.

SubmiBed by : Name 1. NG DING NENG 2. NG WEN SONG 3. JOHAN HUNTER OJA Matric Number U0940576G U1030480D N124387H

A) Introduction and background We often hear the cliche Love is Blind, but is love really blind? Are people rational and logical when it comes to making decisions in a relationship or are people usually more irrational and emotional? Individuals logically qualify and disqualify prospective partners by their attributes, and then go on dates which end up in a relationship. Through out the entire process, many decisions have been made and each decision can be either made rationally or blindly and solely with love. In this report, we also assume that people in love tends to be altruistic but at the same time, will still place his or her own payoff above his or her partner. In this day and time with divorce rates on the rise and peers around us dating vigorously in search of their potential life partner, we decided to embark on the journey to research into whether game theory instruments can be applied in an entire love relationship process. In this report we will be analysing the actions of the two parties in a relationship from the early stage such as initiation of first date to decision-making processes during in a relationship using multiple game theory instruments. In section B of the report, we will be using a sequential model to show how couples make decisions to set the first date. In section C of the report we will be using the stag hunt model to analyse the decision process when one decide to stay faithful or to cheat in a relationship. Last but not least, in section D we will look at the parties deciding whether to exert high effort or low effort in the relationship with the game theory instrument of Reporting a Crime. In each of the sections above including section E, we will be relating the examples back to real-life situations. Do rational behaviour theory really do apply to love and relationships? We will conclude our paper in section F. Through out the entire report, we will be having the following assumptions; The boy and girl are homogeneous and they get their payoff in the same way, in other words, partner 1 and 2 may not refer only to heterosexual relationships but homosexual relationships as well.

B) To ask for the first date Taking the first step, a mandatory part of initiating every relationship. One of the two parties has to take the first step. But taking the first step and asking the other party out, for example, to a date incurs a risk - a risk of refusal. For many, this is the biggest leap you take and also, something very nerve wrecking. Think of it, if you are given the option between getting asked out on a date by a

person you find attractive or asking the same person out on a date, most persons would choose the first option. This is also the situation for our first application of a game theoretical model to a relationship situation. What is the game theoretical outcome when it comes to asking out someone on a date? We have deemed the game as a sequential game with two players and two options. The underlying assumption of the game is that the initial player is interested of a date with the other player following. The game can be modeled as an extensive game with perfect information as: Players: The Initiator and the Decider. Terminal histories: (Offer, Date), (Hesitate, Date), (Offer, No date) and (Hesitate, No date). Player function: P(x) = Initiator and P(In) = Decider.

The initiating player, player 1, can either choose to offer a date or hesitate (A(x) = {Offer, Hesitate}). If player 1 hesitates, the deciding player, player 2, can either choose to go on a date (D) or not go on a date (ND) (A(h) = { Date, No date } ). For example, if player 1 offers a date player 2 can either accept the invitation or refuse the invitation. As offering to go on a date first implies a risk of refusal, the initiating player values the sequence, (Hesitate, D) higher than the sequence, (Offer, D) even though both options ultimately lead to the two going on a date. Looking on the two sequences not leading to a date, both of which the player regards as worse options than the two leading to dates as the initiating player want to go on a date, the initiating player values the sequence (Hesitate, ND) as a better than the option (Offer, ND) as the latter leads to a rejection compared to the first where neither gets rejected. The options can be viewed by order of utility for the initiating player as: u1(H,D) > u1(O,D) > u1(H,ND) > u1(O,ND) For the deciding player, player two values the contrasting sequences different from the initiating player. Under the assumption that the deciding player values a date higher than the option to refuse the initiating player, the deciding player values the sequence of accepting the initial offer higher than having to respond with offering a

date to the hesitating initial player as the second portion also implies a risk for this player. Of the two sequences not leading to a date. The deciding player values the sequence of first getting offered a date and then rejecting higher than rejecting to a hesitating initial player, as the first option is flattering to the deciding player. If both players hesitate they are still at a stage of ceteris paribus, therefore no one being better or worse off. The options for the deciding player can be viewed by order of utility as: u2(O,D) > u2(H,D) > u2(O,ND) > u2(H,ND) Setting levels of utility after the graded preferences of both players (u1, u2) previously described, a model of the game can be viewed in figure 1.1.

Looking at the model described in a matrix form in figure 1.2 the Nash equilibrium as a result of our argued preferences is at (H,D). This means that the stable outcome of the game is that the initiating player always hesitates and let the deciding player task for a date. Now looking at the NE rationally, even though one might agree on the prerequisites for the game modeled here, very few would say that the likely outcome is that the initiating player always hesitates.

This situation depicts efficiently one of the most common issues with game theory when used to help explain behavioral situations and social interactions. Often game theory, when not set out to describe difference elements of human behavior tends to over theorize the issue at hand (Carrer, 1997). This is because one of the core assumptions in game theory is the assumption that the players will act rationally. This is not something that always needs to be the case. For example, players when receiving two sets of offers both uneven to the player tend be more willing to accept that offer just by the notion if the offer is generated by chance rather than by a proper that benefits from the uneven offer. (Blount, 1995) This means that there are more aspects into play when concluding and translating a behavioral game from theory into practice. Even when practically testing the outcome on a game there are multiple more psychological factors that affect the final outcome, even the way the different options are labeled can affect what the player ultimately chooses to do. (Schelling, 1960) Applying this to our first date scenario; this could have the consequence that a player could choose e.g. no to go on a date just because she could connect this label as something preferable, disregarding the meaning of the actual action. The preconditions for a player to take a specific action dont always need to be present from a game theoretical perspective for a practical action to occur. After initiating the first date, lets move on to the next stage of a relationship, and investigate the question of whether to stay faithful in a relationship.

C) Whether to stay faithful in a relationship An example of an opportunity cost during dating phase is the time that one spends hanging out with current partner could also be spent on other activities, such as meeting or dating other people. We found similarity of this problem with the Stag Hunt model. The stag hunt game is a game played by two hunters with a mission to hunt a stag. The success of the game is determined by the cooperation of both hunters to hunt the stag. However, during the process of stag hunting, each hunter will be tempted by a lesser prey: a hare. In the event one of the hunters decide to hunt a hare, which in other words, defects from the stag hunt, his payoff will be a hare. Concurrently, the stag hunt will fail and the non-defector will end up with nothing. The non-defector will hence, based on the other hunters decision (defect), will choose to defect too and hunts a passing hare. In this case, both hunters will end up with a hare each, which is another Nash Equilibrium, albeit a lower payoff. The order of preference for each hunter will be: stag > hare > nothing.

If both hunters cooperate to hunt stag, each of them will have the maximum payoff in the game. However, this equilibrium is unstable as each hunter will be tempted to defect stag hunt and hunt for hare instead. In this game, defecting and hunting hare is considered the risk-free choice. In other words, the two Nash equilibria are (stag, stag), (hare, hare). The cooperative solution (stag, stag) is Pareto optimal, while the solution of (hare, hare) is risk dominant but not Pareto optimal. The best outcome in this game is for both hunters to cooperate to hunt for stag, and if one does, the other should cooperate too. However, if one defects, so should the other. We can see that both of these outcomes are stable since neither hunter has the incentive to switch from hunting stag to hunting hare or from hunting hare to hunting stag. Therefore, if one plays it safe by hunting hare, it will be difficult for both hunters to cooperate and arrive at the same solution of hunting stag. Hence, to maintain the goal of stag hunting, both hunters should signal each other to resist the temptation of hunting hare (defection). Partner 2 Faithful Partner 1 Faithful Unfaithful 3,3 2,0 Unfaithful 0,2 1,1

In our game design, both boy and girl have the temptation to cheat in the process of their relationship. In order for them to have a successful relationship, both of them have to choose to be faithful. The ultimate payoffs at the end of the relationship whereby they blossom their relationship into a marriage give them both the largest payoff, which is same as the cooperative outcome to hunt stag in the stag hunt model. However, there always exists a temptation for a partner to have an affair outside the current relationship, also known as cheating. Although the partner who cheats will have a lower payoff than if both were to be faithful, there is an incentive to cheat because if one ends up as the party who is the only one faithful in the relationship, he of she will have the worse payoff. Hence, cheating eliminates this risk of having the worse payoff entirely. By hunting hare or cheating, the partner will have a risk-free way of getting at least a positive payoff. In relating the faithfulness of a relationship to the stag hunt game in a sequential manner, the second mover will react accordingly to the action of the first mover. If one partner decides to cheat (hunt hare), the other partner will, based on the other partners decision to cheat, will decide to cheat too. As a result, both partners will

become unfaithful, and will end up in the Nash Equilibrium (Unfaithful, Unfaithful) of a lower payoff. Likewise, if one partner decides to stay faithful (hunt stag), the other partner will stay faithful too. Hence, cooperatively hunting stag is similar to staying faithful in a monogamous relationship. While both hunters have to signal to each other to resist the temptation of defection, in a monogamous relationship, both partners can signal to each other to stay faithful in the relationship. Dating couples have done so by introducing their partners to their family members and friends to signify their relationship. However, love is not always rational. The above model is assuming that the unreciprocal faithfulness has the least payoff. In real life, a faithful partner may have a higher reward to stay in a relationship despite a straying spouse due to various reasons. It could be part of being committed in a relationship due to moral principles, or the hope that the straying spouse will return to him. Having an official status with someone he or she love may be better off than him or her going out to be unfaithful with someone else he or she do not have emotions for. The change in the Nash equilibrium comes in if for instance, we were to assume that partner 1 loves partner 2 much more than partner 2 loves partner 1. Hence, partner 1 will be faithful towards partner 2 regardless of whether partner 2 wants to stay faithful to partner 1. In essence, partner 2 will take advantage of partner 1 knowing that partner 1 will unconditionally love him because of her payoff function. In this case, partner 2 repeatedly cheats in the relationship but partner 1 stays faithful.

D) How much effort to put in a relationship (High or Low)? When one puts in high effort into a relationship, we assume that he or she incur higher costs when it comes to maintaining the relationship. In Nelson Pavlosky article on Understanding Falling In Love: An Economic Analysis, we can see that although one may not have to pay any money for the joy and romance in the relationship, when we consider opportunity costs such as the other activities that one can participate in, we can actually attach monetary values to efforts in a relationship. Hence, dating can cost at least as much as the amount of salary one could have received during that time. Dating someone require explicit economic costs, even if we were to discount the cost of buying meals or any other associated gifts. To study the payoffs of putting high or low effort in a relationship, we use the game of Reporting a Crime, which is also called The Good Samaritan Game (K. Binmore, 2007). In this game, we suppose the crime is committed in the presence of n neighbors. Each neighbors benets if the crime is reported, but each would prefer

that some other neighbor reports the crime. The problem here for each neighbor, is to decide whether to report the crime. In this game, the following payoff will be: 0 if no one calls, v if someone else calls but she does not v-c if the player calls. There is no pure Nash equilibrium. If everyone calls, it would be better for you not to do so. If nobody calls, it would be better if you do. However, there is a symmetric mixed strategy equilibrium in which each person calls with positive probability p<1. In this kind of equilibrium, each person's expected payoff to calling is equal to her expected payoff to not calling. As we are using this game to illustrate a monogamous relationship, we will make this a two person game, where n = 2. Hence, this game has the following payoff matrix Person 2 Report Person 1 Report Non-Report 3,3 4,3 Non-Report 3,4 0,0

This game has three Nash Equilibrium. Two of the equilibria are the asymmetric pure strategy Nash Equilibrium (Report , Non-Report) and (Non-Report , Report). The third NE is a symmetric mixed strategy equilibrium [(3/4, 1/4), (3/4, 1/4)] Each player has a probability of 3/4 of reporting the crime, and a probability of 1/4 of not reporting the crime. How does this Reporting a Crime game related to our study of putting high or low effort in a relationship? In a monogamous relationship, the relationship will blossom as long as one of the partners put in high effort. However, one partner would prefer the other partner to put in the high effort, while he or she puts in low effort. Both partners do not want to end up with an unsatisfactory relationship with both putting low effort, as this doesn't benet either of them. On the other hand, if one partner puts in high effort, the other partner has no incentive to put in high effort too, because he is indifferent between putting high and low effort, as both gives the same payoff.

Similar to the game of Reporting a Crime, each partner is to decide to put in high or low effort. Partner 2 High Effort Partner 1 High Effort Low Effort 3,3 4,3 Low Effort 3,4 1,1

Referring to the payoff in this relationship game, it will also have three Nash Equilibrium - two of the equilibria are the asymmetric pure strategy Nash Equilibrium of (H,E) and (E,H). The third Nash Equilibrium will be the symmetric mixed strategy equilibrium [(3/4, 1/4) (3/4, 1/4)] Thus, we can conclude that each partner has a probability of 3/4 of putting high effort, and a probability of 1/4 of putting in low effort in the relationship. The above Reporting a Crime model reects the amount of effort partners put into a relationship. However, that is based on the assumption that the two partners in the Reporting Crime are not self-serving, where each of them makes a decision based on the well-being of others, with an aim of making the relationship blossom. If we look back to real-life relationships, there are times where each partner in a relationship is self-serving, and they will make decision based on their own payoff. When both partners make decision this way on how much effort to put into the relationship, they will fall into the model of Prisoner's Dilemma (William Poundstone, 1992).

Partner 2 High Effort Partner 1 High Effort Low Effort 3,3 4,0 Low Effort 0,4 1,1

In the prisoner's dilemma payoff matrix we see above, the Nash Equilibrium would be the case where both partners put in low efforts and end up in an unsatisfactory

relationship. When this happens, this relationship will not last long, as it can be seen in our society that relationships which does not involve high efforts of either partner, will not blossom.

E) Limitations of the paper This paper has its own set of limitations, which hence may not truly reflect the reality. For instance, we do not include discount factors in our models. In reality, instant gratification is always better than delayed gratification. Hence in our second analysis on the temptation to cheat, in a real-life scenario, the temptation to cheat in the first round may constitute a higher payoff than the temptation to cheat in a later period. Moreover, we assume that all temptations to cheat are homogeneous in nature. This might not be the case in reality as there are often differences in the alternative options for an individual to cheat. For example, one may not choose to cheat with an ugly and poor fling but may choose to cheat with a good-looking and rich fling.

F) Conclusion Based on the above game theory models, we have shown that there is signicant relevance to how game theory can be applied to the concepts of love and relationships. However, we have also shown that in many instances, the game theory models are limited in explaining why irrational decisions are made in human love and relationships too. Moreover, Tobias Galla of the University of Manchester and Doyne Farmer of Oxford University mentioned in their journal Proceedings of the National Academy of Sciences (PNAS) that conventional game theory in regards to strategic decisionmaking always focuses on the locating of an equilibrium point. However, the assumption of an equilibrium point assumes that the players possess perfect information of what they are doing as well as what their partners are doing. Equilibrium is not always the right thing you should look for in a game. In many situations, people do not play equilibrium strategies, instead what they do can look like random or chaotic for a variety of reasons, so it is not always appropriate to base predictions on the equilibrium model, explained Dr. Galla. Quoting Dr. Galla and Dr. Farmer, we can infer that in our example of love and relationships, there are many partners one can choose to have a relationship with, and many times, people do not behave rationally in these situations, or they do not have sufcient information to act rationally. This supports the purpose of our paper that although Game Theory is rational, Love is not.

G) References Carrer, Colin F, Progress in Behavioral Game Theory, Journal of Economic Perspectives Vol. 11 no. 4 fall (1997):167-188. Blount, Sally, When Social Outcomes aren't Fair: The Effect of Causal Attributions on Preferences, Organizational Behavior and Human Decision Processes, Vol 63 no. 2 August (1995) 131-44. Schelling,Thomas C. The Strategy of Conflict, Cambridge, Mass, Harvard University Press, 1960. K. Binmore, Game Theory: A Very Short Introduction. Oxford University Press. (2007), pg 25-26. William Poundstone, Prisoners Dilemma (New York, Doubleday, 1992). Tobias Galla and Doyne Farmer, Proceedings of the National Academy of Sciences (PNAS) Journal, Jan 2013.