Dummies guide to Game Theory

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Definition, history, application and its use in Poker

We’ve heard the word do the rounds more than once in our conversations and it definitely arouses general curiosity. Therefore in this article we take a look at the basic concept of Game Theory, its history, application and more interestingly its use in a game of poker.

What is Game Theory?

The primary goal of Game Theory is playing games to win. A theory used widely across economics, business and mathematics to give the user a competitive edge when it comes to decision-making. Decisions made by competitors and organizations are evaluated to understand why they are making the decision and what can one do better.

The way the scenario plays out in economics or business is similar to any walk of life. For example consider the show Survivor where decisions are made by contestants to outwit the combatants on a desert Island. Similarly in a game of poker where players use Game Theory to make better decisions to beat their opponents or when law enforcement use the theory to understand the psyche of a criminal and to solve big crimes.

To sum it up, game theory is a strategic tool that is used to reveal behavior of other “game” participants and to leverage that knowledge to reach an optimal outcome in any competitive scenario.

It’s History

The concept is not a new one and dates back to 1944. John Von Nuemann and Oskar Morgenstern used the term to explain a mathematical theory that sought to define the strategic behavior of game participants who know that decisions made in the competition impacts all game participants – good or bad. They went onto publish a book titled “The Theory of Games and Economic Behaviorwhich till date remains the bible of game theory analysis.

How does one apply it?

The application and analysis of game theory came over the next five decades. It was three economists – John Nash, John Harsanyi, and Reinhard Selten who won a Nobel Prize for advancing the practical use of game theory in the field of economics.

It’s all about applying the theory to actual strategy, game-wise, and using the knowledge of your opponent to up your chances of coming out as the winner – no matter the scenario/competition you’re engaged in. Winning at game theory means recognizing the choices available, by analyzing the possible choices an opponent has at his or her disposal and choosing the options that improve your chances of a victory.

Game theory now operates in a wide variety of sectors. Here’s a brief outline of how it is used:

As a metaphor for decision theory – A game competitor needs to understand that opponents have those utilities and tools and the competitor has weighed how opponents will use those tools to increase their odds of victory.

Links to the minimax theorem – Game competitors know that a resolution to a game or competition between two parties often depends on knowing a competitor’s opposite goals and interests.

As a mathematical equation – The popularly used term “tit for tat” derives its form from game theory. It’s a gaming concept where one competitor reacts to another move or strategy by responding with a similar move or strategy.

Leveraging “common knowledge” – Hiding secrets from competitors is a big part of game theory and is referred to as ‘common knowledge’. Under this scenario, game theory participants learn key information that could sway the competition’s outcome, but don’t know if other competitors possess the same information.

Game Theory in Poker

Poker as a game has evolved rapidly in recent years. The most obvious change being the strategies used to be winning players. While old-school players made their millions from exploitative play, new age poker professionals now depend on poker game theory with exploitative play mixed in to stay ahead of the game.

Understood mathematically, poker’s complexity runs deep from the particular hand you open from each position, to a check on the river in a small potevery decision influences the win-rate as a poker player. The game has reached a stage where it’s very difficult to consistently to beat the game without game theory knowledge in the corner of your mind.

Why use Game Theory Optimization in your poker strategy?

Often poker players wonder why it’s important to play game theory-influenced strategy when most of their money will be made by exploiting weaker players, or players who simply aren’t paying attention. Gone are those days and here’s a good enough reason why you should be brushing up on Game Theory for the felts:

  • Winning player in the long run – With a balanced GTO-based strategy you will win money in the long run regardless of how skillful your opponents are.
  • Making adjustments to counter your opponents is easier if you have a baseline strategy from which to adjust.
  • Avoid Circular Thinking – Read our article on The Multiple Levels of Thinking in Poker to know more.
  • Avoid Making Assumptions – It prevents players from making potentially incorrect assumptions of their opponents.
  • Objective Analysis – Many players often tend to incorrectly judge how they played a hand based on its outcome. As one advances in their poker career, one realizes a successful poker player knows that admitting mistakes to one’s self is absolutely crucial to consistently playing well and that one is not in the business of looking at results in a vacuum. Game theory provides a foundation for discerning mistakes more easily.

While this might be a lot of information to fathom, trust us to break it down for you and stay tuned for more articles on Game Theory and Poker.

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