I love incentives. I enjoy thinking about what motivates people, what motivates myself, and, in general, how people make decisions – large and small. A special case in the study of incentives is game theory.
Many things that are not (literally) games – love, international relations, negotiations – can actually have their underlying mechanics modelled, and often accurately predicted, within a game-theoretic framework. Game theory is especially helpful to model situations in which individuals’ incentives are not atomic – that is, they interact with one another – which is quite often the case in the real world.
A fundamental building block of the field is a payoff matrix. A payoff matrix is where an individual’s decisions are mapped to “payoffs,” or return values, for an individual taking a certain decision in a moment in the game. For example, if you have $100 at the start of time, and...