Game Theory

This is a human psychology concept which is suppose to explain human behavior, which is not rational, but predictable.
The most common method of explaining it is called the Prisoners Dilema.

First Part:

It starts with two people, person A and person B, who plan and commit an crime together.

They are arrested for the crime by Police, and now they become Prisoner A and Prisoner B.

The Police have suspicion, but no proof that they committed the crime. So they separate them and offer them a deal, that if one informs the Police about the plan and gives enough evidence to convict the other one will go free.

The prisoners now have a dilema:
If neither speaks, the Police will convict them both of a lesser crime and they both do a very small amount of prison time.
If one tells everything, they will go free, but the other prisoner gets a longer jail sentence.
The one who tells everything will gain his freedom, but no one will associate with him again because he is a Police informer.
The one who tells nothing will be betrayed by the other and spend time in jail. But all his frineds will admire him and continue to associate with him because he isn't a Police Informer.

Game theory teaches us the majority of the time, prisoner A will chose short term sacrifice thinking that prisoner B is also choosing short term sacrifice, but prisoner A is wrong. Prisoner B chose short term gain and turns on prisoner A, so prisoner A ends up spending more time in jail and prisoner B ends up spending no time in jail.
Prisoner A suffers short term, but all their shared friends respect him, so prisoner A gets longterm gain. Prisoner B choses short term gain, and spends no time in jail, but all their shared friends hate him, so prisoner B suffers longterm losses. Prisoner B can only see short term gain or short term loss, and choses short term gain.

The Prisoners dilema shows how the prisoners must choose between short term gain and longterm gain.
Game Theory says humans chose short term gains the majority of the time, even when they realize the longterm gains are greater then the short term gains.

This is the prisoners dilema, which involves either choice A: short term gain and long term loss, or choice B: short term loss and long term gain.

The Prisoners dilema explains human behavior because humans are often asked to choose between short term gains which help only themselves, or longterm gains which help them and their community.
The Prisoners Dilema explains how humans predictably choose short term gains for themselves at the cost of short term pain to others.
The Prisoners Dilema also explains why humans chose small short term gains for themselves at the cost of longterm losses to themselves.
Lastly prisoners dilema explains human behavior is irrational but predictable.

For example: If you bought 1000 Bitcoin at 10 cents each, should you sell them when the Bitcoin price gets to one dollar? Your 100 dollars worth of Bitcoin is now worth 1000 dollars.
The short term gain is 1000 minus 100 or 900 hundred dollars, a very nice short term gain.
But what if you hold onto it until each Bitcoin is worth 100 dollars each or 1000 dollars each.
You must chose between a longterm gain of value of 100 thousand dollars or one million dollars versus a short term gain of 1000 dollars.
Game Theory teaches us that the majority of people chose short term gain and sell all 1000 Bitcoin for 1000 dollars. Short Term Gain.
Then when the value of their 1000 Bitcoin they sold at a dollar for 1000 dollars, goes to one 1000 dollars for a total value of million dollars, they regret selling the Bitcoin. Long Term Pain.

The irony or irrationality here is that people intuitively know their investment may be worth much more, if they wait, but the majority still choose short term rewards over long term rewards.
The majority will not sacrifice short term gains, for longterm gains.
They focus on the short term pain of not haviong 1000 dollars, and chose short term gain of 1000, losing out on long term gain of one million dollars. - Game Theory teaches us that humans do this repeatedly and predictably.
Game Theory teaches us that one way to be successful is to design systems which take advantage of this behavior in humans, and those systems are often called Scams or Get Rich Offers.
Humans repeatedly fall for scams because of Game Theory

Game Theory explains why Get Rich Quick Scams are so prevalent, and why people continue to fall for them.
People have a prisoners dilema type scenario with scams.
For example the person who is saving up money to buy a house, will need 5 years to save the money. After 2 years they have a good amount saved, with 3 years to go.
If they get contacted about a get rich quick plan that will double their money. They must chose between the perceived short term gain of the GET RICH QUICK scenario where they might get all the money they need to buy the house now, or sacrifice the promise of the GET RICH QUICK plan and focus on the LONGTERM GAIN of buying a house and continue to save.
The rational thought process should involve recognition of the problem that if it's a scam they lose all their money and have to start over saving and now it will take 2 years longer to reach their goal.
That loss and the setback are the Longterm consequence of the choice to choose to go after a perceived Short Term gain.
So once again we have a prisoners dilema, chose the short term gain get rich quick offer, for it's potential of doubling your money, and avoiding pain of 3 more years of savings or turn down the Get Rich Quick offer, sacrificing the potential short term gain of doubling your money, but gaining the longterm advantage of reaching your savings goal in 3 more years.

If you guessed that a lot of people follow Game Theory Rules and go for the Get Rich Quick offer, you guessed right.
The irony is they usually don't end up with the short term gain, because the get Rich Quick plan is a scam. So they end up with the Longterm pain of needing two more years to save, and a total of 5 more years saving for their home.
Despite the fact that people know that most Get Rich Quick offers are scams, people still try them. - These scams persist because a large percentage of people chose to try the short term quick gain, and we can predict this because of Game Theory.

What observations have you made about people's behavior that can be explained by Game Theory?
What about your behavior? You are human.
What things do you do, which are explained by Game Theory?