Bill Gates could gain a lot from a little game theory
By Bernard Cole, EE Times
Jun 19, 2000 (7:59 AM)
URL: http://www.eetimes.com/story/OEG20000619S0010

It's too bad that Bill Gates, chairman and founder of Microsoft Corp., decided to drop out of college and become a billionaire. He might have learned from game theory that in the long run the best competitive strategy is to be nice, or at the very least to do unto others as they do unto you. If others are nice and play fair, do likewise. And if not, treat them accordingly: reciprocity, as the social scientists say, and tit-for-tat, as the game theorists put it. What you don't do is grind them into dust on the assumption that the best competition is no competition. Game theory says that is not a good strategy for long-term survival. With no competition, why innovate?

John Von Neumann, who made fundamental contributions to computer science and quantum theory, called game theory a mathematical analysis for modeling competition and cooperation in living things, from simple organisms to human beings. Game theory has become useful in helping scientists determine how entities cooperate and compete and which strategies are most successful.

Particularly instructive is Robert Axelrod's The Evolution of Cooperation. The book describes computer games with participants from around the world, focused on determining how individuals in groups, who are likely to interact with others, act in a competitive situation.

His model for competition is the game theory situation called the prisoner's dilemma. Here, individuals pursue self-interest without a central authority to force cooperation. Each player can choose only to reciprocate or not. Each must choose without knowing what the other will do. If one reciprocates and the other does not, the nonreciprocator comes out ahead initially, but only if the other plays by the rules. If neither reciprocates, both do worse. And in groups, reciprocators always did better in the long run than nonreciprocators. When everyone reciprocated, everyone benefited, not equally, but better than before.

Adhering to both sides of that misunderstood Biblical dictum-an eye for an eye, etc.-seems the successful strategy, both for the individual and all the members of a group. On the other hand, a hard-nosed, tough, never-give-a-sucker-an-even-break attitude, while successful in the short term, is a losing proposition. Scientists have used game theory to understand how small single-cell organisms, more-complex organisms, animals and humans survive and thrive and the results are the same: only the fittest survive. But the fittest are not the toughest, the biggest or the meanest; they are the fairest and most even handed in their dealings with one another.

If game theory's tit-for-tat seems to succeed in virtually every other place in nature, why not in the free market?

EE Times Embedded/Net-Centric Managing Editor Bernard Cole is the author of "The Emergence of Net-Centric Computing."