Wiegie - Game Theory in Economics and in general

[cliaz]

Sugar Booger et al -

 

Have you worked with any Game Theorists? I'm curious what your thoughts are with game theory in general as well as specifically towards economics.

 

I'm thinking about recruiting one for my side business I'm attempting to stand up (With Darin) for emergency management. Specifically, to use them when faced with the following dilemma:

 

During the Risk Analysis & Hazard Assessment phase of an All-Hazards Continuity of Operations or Emergency Operations Plan a five-step risk assessment model is used to generate the risk analysis & hazard assessment along with any applicable mitigation tactics to reduce threats.

 

* Asset assessment

* Risk assessment

* Threat assessment

* Vulnerability assessment

* Identification of countermeasures

 

Asset Assessment Step:

* Compile list of assets

* Categorize assets as critical, essential & normal

* Prioritize by level of impact to entity's operations

 

Risk Assessment Step:

* Compile a list of known risks to individual asset

* Categorize risk as high, medium or low impact vs high, medium or low probability

 

Threat Assessment Step:

* Map the rank ordered assets & risks into single matrix (called risk-asset matrix)

 

Vulnerability Assessment Step:

* Probability of Occurrence

* Vulnerability to risk

* Potential Impact of risk

 

Identification of Countermeasures Step:

* Rank mitigation tactic by cost to implement verse cost of actual event from a risk

* Determine if any existing assets that can countermeasure risk

* Develop contingency plan to reduce risk

* Invest in new resources to counter risk

 

During the Identification of Countermeasures Step there is a point where you need to rank the cost to implement the mitigation tactic verse the cost to recovery from the actual event that spawns from a risk. I want to be able to bring more accurate projects to the table for a client than simply weighting the cost difference.

 

Example: Public Works Water Pumping Station sits next to a large lake that is subjected to a 100 year flooding due to a specific set of conditions. These conditions are as follows:

 

Early spring melting in the mountains which feeds the river that feeds the lake

Higher than average rainfall & snowfall totals

Flooding of the natural springs under the lake

 

Public Works can either spend money to build a levee to divert the flood water from penetrating the structure and contaminating the potable water or label it as an acceptable risk in which the city government will pay out for repairs after the fact.

 

End of Example

 

Using the example above, if I were in this situation with a client I would like to provide them with all of the possible scenarios for flooding using a game theory field. This would help them reach a more educated decision on spending money up front or taking the acceptable risk.

 

Has anyone worked with or done business with a Game Theorist outside of the movie A Beautiful Mind?

[wiegie]

I don't think game theory is the appropriate type of analysis to use here. It's more just risk management.

 

Game theory basically has people, firms, nations, whatever, trying to figure out what their best strategies are when competeting (or cooperating) with each-other. In this case, you are basically going up against Nature and Nature is not going to change it's actions based upon what you do.

 

Let me give two scenarios, both involving a potential invasion into a valley. In the first case, suppose the pending invasion is coming from an army. You might say, let's build a giant wall across the valley to stop them from coming in. But then you, think "if we build that wall, then the army will just go up the hillside around the wall, so we need to be ready to defend against that too. (In other words, the other army will change its actions based on what you do (or what it thinks you will do).

 

In the other situation, the invasion is coming from a flood of water. No matter what you do, the water is always going to try to go downhill--it won't switch actions based upon anything that you do. Hence, there is no game being played and game theory isn't appropriate to use.

 

 

As for game theory in general, the guy in the office next to mine is a game theorist. They do interesting stuff--although it's not certain that it is always applicable in the real world.

 

I had a professor in grad school who once described game theory as: "you know that I know that you know that I know that this is all bullsh|t"

[bpwallace49]

Have you tried using the WOPR computer from War Games?

 

Hint . . . mention that name "Joshua".