What is Game Theory?
Let's find out Game Theory meaning, definition in crypto, what is Game Theory, and all other detailed facts.
The game theory was created by John von Neumann and is one of the most utilized theories in the economical area.
To put things into perspective, the game theory can be seen from the digital assets marketplace perspective. The employment of game theory within the cryptocurrency context leads to the creation of cryptoeconomis. It is essentially the study of the economics of blockchain protocols and the possible results that the design of these protocols might showcase.
For example, the Bitcoin market has both, holders that are long-term investors, and opportunists that are short-term investors. So, low-volatility periods are when holders will purchase their assets. Opportunists, on the other hand, will end such periods and influence volatility when they step into the market.
Therefore, each type of investor obtains a few methods they can utilize, depending on the actions of the other investor. They are all acting in their own best interests, fighting for asymmetric benefits while working together to increase the total value of BTC.
This is an excellent implementation of game theory since it examines how different groups of people react and respond to the actions of the other group.
The Prisoner’s Dilemma
One of the most well-known game theory examples in practice is the prisoner's dilemma. It depicts a situation in which two criminals are being questioned after being captured. Each suspect is questioned in a separate room and is unable to interact with the other.
The prosecutor attempts to get the convicts to testify against each other in order to minimize their charges. If one criminal testifies against the other, he may be released while the other is detained for an extended amount of time.
Both are arrested for a shorter amount of time if they both testify against each other. And if they both decide not to betray each other and remain silent, they are merely condemned to the bare minimum of time in jail owing to a lack of proof.
The prisoner's dilemma has numerous variations, and it exemplifies the concept of utilizing game theory models to examine human behavior and potential consequences.