3 game theory tactics, explained

• Anytime that you're interacting with another person who has their own interests and is trying to achieve their own ends, they are trying to do the best they can, given what they want; you're trying to do the best you can, given what you want, and so you're interacting in a strategic situation.

'Game theory' is a mathematical theory that attempts to make sense of how it is that people interact in these strategic situations.

• John von Neumann wrote a very important book called the "Theory of Games" with a guy named Oskar Morgenstern. And in there, he laid out game theory. And game theory is: "The study of decision-making under conditions of uncertainty over time."

• It was originally developed in economics in order to try and understand economic behavior, like why people buy certain things or why they're willing to work for certain wages. But later on, it was expanded and applied to a variety of different situations, including biology, international relations, and even interpersonal relations like friendship and parenting and family relations.

One of the things that game theory has really shown us, through recent study, has been interactions that we oftentimes think as 'zero-sum,' or competitive, are not as competitive as they seem. In situations like in the Cold War, which most people thought, that's gotta be a zero-sum game if anything is, we discovered that actually there were opportunities for mutual cooperation.

Arms reduction treaties are a great example. The U.S. and the USSR figured out that if they could find a way to cooperate, they could both save an enormous amount of money and effort by reducing the number of weapons that they had.

Reagan and Gorbachev negotiated the START Treaty with one another, and one of the big problems that they had is, how can you be sure that while you're eliminating nuclear weapons, your adversary is also eliminating nuclear weapons?

So rather than saying, "We're just gonna get rid of some large percentage of our nuclear weapons and hope that the USSR would do so as well," they broke up the interaction into a bunch of little tiny ones.

So, the USSR would eliminate just a few nuclear weapons, then the U.S. would eliminate just a few nuclear weapons. They would check, and then they would go on to the next stage. And then each would eliminate a few more, and they'd go on to the next stage.

This process of taking a big interaction and breaking it down into little small parts can change a bad social dilemma into a positive interaction.

What I do in my personal life and I think almost everyone can do in their personal life, is to try and think, 'In this interaction, what outcome would be good for both parties?' And, 'How can we achieve that outcome?'

And by thinking about everything in that way, we oftentimes transform something that seems like a situation where there has to be a winner and there has to be a loser, into one where nobody feels like they've lost and everybody benefits.

• John von Neumann-based game theory on a stripped down version of poker.

• In any given poker situation that you're dealing with a lot of uncertainty and it's all about how to make the best decision in any given moment- and that's so integral to life. Everything we try to do, you know, 'Should we take this route or that route?' 'Should I go here on vacation or there?' It's all about dealing with uncertainties and probabilities of things happening- and poker is a very fun and easy way to teach someone how to do that.

First rule of thumb is how to extract the most money or chips from your opponent when you have a strong hand and how to lose the minimum when you have a weak hand. You're never going to be 100% certain where you are: are you beating them or do you have a worse hand?

So, you have to sort of construct a strategy that is mathematically optimal in each situation. The most damaging bias that can come up in poker, and I also think very often in life, is the 'Sunk cost fallacy.' Where you'll have a lot of chips, perhaps almost all of your stack is in the middle, and yet, you are 85% to 90% confident that...