Game Theory and Modeling Consumer Behavior

“Every game ever invented by mankind, is a way of making things hard for the fun of it!” –John Ciardi


 


After being free from exams, I started catching up on my readings and was browsing through November’s Forbes when I saw Allison Fass’s article on game theory in marketing section. This article discusses the simulation of consumer behavior via mathematical modeling to create a predictable model of marketing strategy. Interestingly enough, Lorry was watching deal or no deal at the same time, a game show premiered today based on the game theory; quite a coincidence eh?


 


Game Theory, like every other CS grad, was taught to me during Statistics and “Stochastic process & inference” courses. Interesting stuff but did I ever thought it would actually be useful in everyday development? Not really. It was most likely the lack of vision as I later found it to be a widely used technique in simulation and modeling in the “real world”, and SIM city of course. It’s even in Hollywood since Beautiful Mind highlighted the life of John Nash, who is the Nobel Prize-winning economist informing nation benefits of economic game theory.


 


Some quotes from David McAdams’s lectures.


 



  • “Game Theory, long an intellectual pastime, came into its own as a business tool.” Forbes, July 3, 1995, p. 62.

  • “As for the firms that want to get their hands on a sliver of the airwaves, their best bet is to go out first and hire themselves a good game theorist.” The Economist, July 23,1994 p. 70

  • “Game theory is hot. “The Wall Street Journal, 13 February 1995, p. A14 

The modeling company in the article is Decision Powers which has punch line slogans as


 




  • “Did you know he was going to choose that? We did”


  • “Did you expect this kind of response? We did”


  • “Did you know he was going to recommend that? We did”

 


They claim the model replicates the way consumers are making decisions. The agents are programmed to interact and act by rules with a %age of randomization, probability and intuition. In the article, techniques are said to be used effectively from vending machine placement to advertising niche shift.


 


Game Theory can be formally defined as


 


“The modeling of strategic interactions among agents, used in economic models where the numbers of interacting agents (firms, governments, etc.) is small enough that each has a perceptible influence on the others” [1]


 


And


 


“The Game Theory studies winning strategies for parties involved in situations where their interest conflict with each other. Developed by John von Neumann, the theory has applications to real games (cards, chess, etc.), economics, commerce, politics and some say even military.” [2]


 


For further details, industry usage and implementations, check out Wikipedia – Game Theory


MIT Open courseware provides a great course on 15.040 Game Theory for Managers, spring 2004; I’m planning to take it once I complete the Machine learning one.


 


ACM Papers on game theory


 






Everything you always wanted to know about game theory: but were afraid to ask


Daniel D. Garcia, David Ginat, Peter Henderson January 2003           ACM SIGCSE Bulletin , Proceedings of the 34th SIGCSE technical symposium on Computer science education SIGCSE '03,  Volume 35 Issue 1




Satisficing Equilibria: A Non-Classical Theory of Games and Decisions


W. C. Stirling, M. A. Goodrich, D. J. Packard


September 2002   Autonomous Agents and Multi-Agent Systems,  Volume 5 Issue 3


 






Game Theory and Decision Theory in Multi-Agent Systems


Simon Parsons, Michael Wooldridge


September 2002 Autonomous Agents and Multi-Agent Systems,  Volume 5 Issue 3


 


Incentives in practice: Experiences applying game theory to system design


Ratul Mahajan, Maya Rodrig, David Wetherall, John Zahorjan


September 2004  


Proceedings of the ACM SIGCOMM workshop on Practice and theory of incentives in networked systems


 


 



[1] www-personal.umich.edu/~alandear/glossary/g.html


[2] math-terms.org/g.html

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