My father does this routinely when purchasing a new vehicle, and I knew that it worked — but it never occurred to me that it’s related to game theory. 

“Game Theory” is the study of mathematical outcomes of “games” whether poker, competitive business strategies, law, war, political science, and a host of other social situations. It’s all about how groups of people interact with each other, and how each responds to stimuli from other people in a group.  

The two main branches of game theory as it relates to human interaction are:

1) Cooperative, which is all about humans working together to achieve a common goal.

2) Noncooperative, which is what we face when one party is aiming to come out ahead of the other. In effect, opposing goals. 

So what does all of this have to do with buying a car from a dealer? 

Watch professor Bruce Bueno De Mesquita break it down. 

For more videos from this professor, here's his work on Big Think. Also, his books are available if you're so inclined.

Thumbnail image via Wikimedia Commons License.