We discussed objectives and decisions where only one individual is making decisions based on their own objectives. But once there are multiple individuals involved, each making decisions that affect the others, it now becomes a game. We all make countless decisions each day, and since our actions so often affect the people around us we are constantly interacting with games.
It’s not necessary to formally define what a game is here, because an intuitive description should be clear. A game contains:
It might sound like I’m just describing traditional games that people play for fun (or gambling), but a huge variety of systems in the ‘real-world’ can be viewed as games. As just one example, the job market can be thought of as a game. Applicants compete with each other by choosing how to present them selves to compete with each other, and on the other side employers try to attract good workers by competing on salary, wages, etc. There will be many more examples in this article and the rest of the blog.
Some real-world games have rules that are explicitly written, like the rules to a board game. Auctions, for example, have rules that are determined in advance and all buyers and sellers must agreed to them. If you think about it, the legal system can also be considered as a game with explicit rules (although the rules are often ambiguous and punishments are often arbitrary or biased.) The law is essentially a list of different actions, and the punishment you get for taking each action. Each person then decides if they want to break any particular law, based on their own objectives, their estimate of the chance they’ll get caught, and how bad the punishment will be.
Other games are less explicit, without rules per se but with norms that have evolved over time. For example, in many cultures there is a strong norm for people to form an orderly line when waiting for things. The rule is that after you join the line, everyone who joins after you must stand behind you. There usually isn’t an explicit punishment for violating this norm, although if you try to cut in line you will probably lose some social standing and may even find yourself in an altercation. This ‘queuing norm’ is very helpful for keeping things orderly and fair, but no government or monarch decided it to be this way. It just developed naturally over time. But their rules are still human-made, not immutable forces of nature but the product of human minds.
Whether the rules of a game are explicit or implicit, often they have existed unchanged for so long that people have forgotten that they can be changed. In times and places that ‘eye for an eye’ was the law of the land, it probably seemed to most people that this was just the way things worked as a law of nature (or God). But those laws did change, both explicit laws enforced by governments and the ethical norms that most people follow.
Understanding how rational players will act in a game with set rules, or how you yourself should act as a player, is the field of game theory. Understanding some game theory is a necessary piece of this puzzle, and will be discussed in other articles. But what is less well-known is the field that studies how the rules of games should actually be designed to get good outcomes. This field has the unfortunately vague name of mechanism design. Mechanism design studies how changing the rules of a game affects the behavior of the players, and how that in turn affects the outcomes.
Unsurprisingly, changing the rules of a game will affect the actions that the players choose to take. This is because each player chooses their actions based on their own objective, and different rules will provide different incentives.
Consider a highway with no speed limit. Drivers can go as fast as they like, but above a certain speed they will be putting themselves and other drivers at greater risk. Each driver will choose their speed depending on their patience, their estimate of the risk, the speed of other drivers, their concern for their own safety or safety of others, etc. But what if the rules of the game are changed, so that getting caught driving above 100 km/h will get you a speeding ticket? Then surely many fewer drivers will choose to drive above 100 km/h.
Changing the rules of a game will change the actions of the players, which in turn will change the outcomes of the game. Adding the speed limit will probably change the fatality rate, and also the average driving time, etc. It is not the job of mechanism designers to decide what the desired outcomes are (i.e. the objective), their job is to determine what the rules of the game should be to optimally achieve a given objective. That is, mechanism design doesn’t tell you what your values should be, but tells you how you should design the rules of games to achieve the values you already have.
Here is a diagram showing the sequence of the rules of a game influencing the actions that the players take which then leads to the outcomes.