Keynesian Beauty Contest
- Inventor of Game: John Maynard Keynes
The Keynesian Beauty Contest is one of the most well-liked game theories around. Invented by John Maynard Keynes, he decided to come up with a game theory that could properly explain price fluctuation in equity markets. In his 1936 book, The General Theory of Employment, Interest, and Money he describes a simple beauty contest. In this contest, people are rewarded for selecting the most popular faces among all players. This is being done over the more common concept of which they might personally believe to be the most attractive. Essentially, they are picking the person they feel the others will pick.
These rational agents (the people) are given 100 photographs and are tasked with picking the six most attractive faces. Those who pick the most popular faces get a reward. The more common choice would be to pick the people that are attractive to them, but a sophisticated contestant might wish to maximize their chances of winning. Therefore, they would need to know what the majority perception of attractiveness is, then make their selection based on that. The hiccup in this is that one must consider the differences in attractiveness we all have that differ from the norm. This game theory has been utilized in many forms, especially in the stock market.