Term Paper on "Game Theory the Scenario"

Term Paper 5 pages (1447 words) Sources: 0

[EXCERPT] . . . .

Game Theory

The scenario that I have chosen to write about is the upcoming election in the United States. The election essentially comprises a number of different ballots, including for President, for members of Congress and for Senate. There are sometimes other ballot initiatives as well, but for this discussion those will not be counted. The input of the election is the ballots that each voter casts. It will be assumed for simplicity's sake that every voter will cast a ballot for each category. The outcome will be the governance of the country at the federal level.

The structure of elections is such that there are a wide range of possible outcomes. We see polls in the newspaper about some of these potential outcomes -- who wins what states, etc. So there are a number of different ways to look at the election. For example, in the Presidential ballot, the electoral college system is used. For Congressmen and Senators, the ones with the most votes win. In the electoral college system, each state will have a set number of votes for President, and the candidate with the highest total of these votes will win the Presidency. It is worth noting that in this game, we can consider that there are four candidates including the Libertarian and Green Party candidates, but those latter two are highly unlikely to capture any votes in the electoral college.

One of the biggest decisions that a voter has is who to vote for. This is not always an easy choice as most voters have a number of different issues that are of concern to them. When the platforms of the political parties are evaluated objectively, it is highly unlikely that a voter will side strictly with a given party, so the voter can use to game theory to understand the best place to cast his or her ballot. To do this, the voter can evaluate payoffs.

Suppose Voter a is a college freshman. There are two issues that are important -- tuition funding and taxes. The student voter is only concerned about money, because he is economically rational. Tuition funding is an immediate priority, because Candidate a is promising additional funding for education that could see a net reduction in Voter a's debt load upon graduation. Candidate a is also promising no tax cuts, however, because his spending promises need to be paid for. Voter a figures there is a 75% chance that Candidate a's tuition reductions will be greater than the tax benefits that will be received, because new college graduates usually do not benefit from tax cuts that affect rich people. However, Voter a also knows that eventually he will make a lot of money and those tax breaks in the long run might help. There is a 25% chance that the tax cuts from Candidate B. will be bigger in the long run than the tuition reductions from Candidate a. As a rational person, the bigger the financial benefit will be a key deciding factor in the vote. Under this simple model, 75% is assumed to be the better place to put the vote.

Game theory can address far more complex scenarios, however. We all know politicians make promises on the campaign trail that they cannot keep. So consider the following:

Candidate a has a 20% chance of a $10,000 tuition reduction and a 10% chance of a $500 tax reduction. Candidate b has a 2% chance of a $10,000 tuition reduction and a 70% chance of a $500 tax reduction. The voter then must weigh these odds vs. The promised benefits. So for Candidate a: (.2)(10,000) + (.1)(500) =2000 + 50 = $2,050 benefit to the voter. For Candidate B: (.02)(10,000) +(.7)(500) = 200 + 350 = $550. The voter should vote for Candidate a because the expected payoff is much greater than for Candidate B.

Now in the real world this is likely to be a more complex scenario. Candidate a's platform might be expensive, and this could compromise the U.S. economy. Thus, the tuition credit might be great in the short-term, but taxes in the long run might increase and job prospects might be worse. However, the voter does not know if these things are going to happen. The same thing is true for Candidate B, because tax cuts are not free… READ MORE

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