Game theory: basics and perspectives

Abstract

If you must be selfish, then be wise and not narrow-minded in your selfishness. Dalai Lama, 2002 NEGOTIATION is often characterized as interdependent actions involving a set of two or more decision-making units which have different preferences over the possible outcomes. By considering a negotiation process as a strategic interaction, we can shed light on interactive decision-making among actors who have a set of actions to choose from. In an interactive process, the actual or likely decisions by one agent have an impact on the other's choice of actions. Viewing this decision-making process within the structure of a game helps us explore different possibilities for solutions to conflicting preferences. In fact, game-theoretic analysis assists in uncovering order in seemingly chaotic interactions among negotiators. This chapter introduces a game-theoretic perspective in building a foundation for understanding structural conditions embedded in many conflict settings. It starts with theoretical assumptions about interactive decision-making and moves on to basic concepts involving the Prisoner's Dilemma and minimax. By introducing these and other concepts such as a dominant strategy and an equilibrium, the chapter lays the groundwork for further discussion about the dynamics of cooperation and conflict that will come later. Strategic interaction in negotiation In strategic situations where the outcome for each participant relies on mutual decisions, an individual's success depends on the choices of others. For instance, when one country concedes part of a disputed territory, they would want to have measures taken to ensure the territory is prevented from being used to attack. Not only one's own choices but also those of other actors drive the allocation of values. In other words, an ability to realize one's own desires hinges on what the other does (Schelling 1960). Thus the outcome derives from mutual influence of each other's actions and strategies, reflecting the decisions of all the concerned parties who have different interests. In general, negotiation has long been defined such that “choices of the actors will determine the allocation of some values,” and “the outcome for each participant is a function of the behavior of the other” (O. Young 1975, 5). More specifically, bargaining takes place because each actor's welfare is affected by the other's decisions.