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    Game Theory

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    nasir shahab
    Game theory is the study of strategic decision making where outcomes depend on the actions of multiple players. The document discusses several examples of games including matching pennies, Boeing-Airbus competition, prisoners dilemma. It explains the key elements of a game as players, possible moves, outcomes and payoffs. Matrix representations of the example games are provided and game theory tools like dominated strategies and Nash equilibrium are introduced to predict game outcomes.

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    Game Theory

    Uploaded by

    nasir shahab
    11 views17 pages
    Game theory is the study of strategic decision making where outcomes depend on the actions of multiple players. The document discusses several examples of games including matching pennies, Boeing-Airbus competition, prisoners dilemma. It explains the key elements of a game as players, possible moves, outcomes and payoffs. Matrix representations of the example games are provided and game theory tools like dominated strategies and Nash equilibrium are introduced to predict game outcomes.

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    Game theory is the study of strategic decision making where outcomes depend on the actions of multiple players. The document discusses several examples of games including matching pennies, Boeing-Airbus competition, prisoners dilemma. It explains the key elements of a game as players, possible moves, outcomes and payoffs. Matrix representations of the example games are provided and game theory tools like dominated strategies and Nash equilibrium are introduced to predict game outcomes.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    11 views17 pages

    Game Theory

    Uploaded by

    nasir shahab
    Game theory is the study of strategic decision making where outcomes depend on the actions of multiple players. The document discusses several examples of games including matching pennies, Boeing-Airbus competition, prisoners dilemma. It explains the key elements of a game as players, possible moves, outcomes and payoffs. Matrix representations of the example games are provided and game theory tools like dominated strategies and Nash equilibrium are introduced to predict game outcomes.

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    GAME THEORY

    Game Theory and Economics

    Game theory is the study of how people


    behave in strategic situations.
    Strategic decisions are those in which
    each person, in deciding what actions to
    take, must consider how others might
    respond to that action.
    Game Theory and Economics
     If the market is composed by a small number
    of firms, each firm must act strategically.
     Each firm affects the market price changing
    the quantity produced.
     Suppose 2 firms are producing 100 units.
     If one of the firms decides to increase the
    production by 10 units.
     The market supply will increase from 200 to
    210 and the price has to drop to reach an
    equilibrium.
    Game Theory and Economics
     Therefore, it also affects the profits of
    other firms.
     Each firm knows that its profit depends
    not only on how much it produced but
    also on how much the other firms
    produce.
    What is a Game?
    A game is a situation where the
    participants’ payoffs depend not only on
    their decisions, but also on their rivals’
    decisions.
    This is called Strategic Interactions:
    My optimal decisions will depend on what
    others do in the game.
    A Game
    Four elements to describe a game:
    players;
    rules: when each player moves, what are the
    possible moves, what is known to each player
    before moving;
    outcomes of the moves;
    payoffs of each possible outcome: how much
    money each player receive for any specific
    outcome.
    Matching pennies

    Each player selects one side of a coin;


    if the coins match player 1 wins and gets
    1 dollar from player 2;
    if the coins don’t match player 2 wins
    and gets 1 dollar from player 1.
    Matrix Representation of
    Matching Pennies

    Player 2

    Head Tail

    Head 1,-1 -1,1


    Player 1
    Tail -1,1 1,-1
    Boeing-Airbus game
    Boeing and Airbus have to decide whether to
    invest in the development of a Super Jumbo for
    long distance travel;
    if they both develop successfully the new plane,
    their profits will drop by 50 millions a year;
    if only one develop the Super Jumbo, it will
    make 80 millions a year in additional profits,
    whereas the profits of the other firm will drop
    by 30 millions a year;
    if no firm develops the plane, nothing changes.
    Matrix Representation of
    Boeing-Airbus game

    Airbus

    Do not
    Develop
    develop

    Develop -50,-50 80,-30


    Boeing
    Do not
    -30,80 0,0
    develop
    Solutions of the Games

    To predict what will be the


    solution/outcome of the game we need
    some tools:
    dominated and dominant strategies;
    Nash equilibrium.
    Prisoners Dilemma
    Two individuals have been arrested for
    possession of guns. The police suspects that
    they have committed 10 bank robberies;
    if nobody confesses the police, they will be
    jailed for 2 years.
    if only one confesses, she’ll go free and her
    partner will be jailed for 40 years.
    if they both confess, they get 16 years
    Matrix Representation of
    Prisoners Dilemma

    Bonnie

    Do not
    Confess
    Confess

    Confess 16,16 0,40


    Clyde
    Do not
    40,0 2,2
    Confess
    We want to predict the outcome of the game
    Suppose that Clyde decides to confess. What is the best decision
    for Bonnie?

    Bonnie

    Do not
    Confess
    Confess

    Confess 16,16 0,40


    Clyde
    Do not
    40,0 2,2
    Confess
    We want to predict the outcome of the game
    Suppose that Clyde decides to remain silent. What is the best
    decision for Bonnie?

    Bonnie

    Do not
    Confess
    Confess

    Confess 16,16 0,40


    Clyde
    Do not
    40,0 2,2
    Confess
    We want to predict the outcome of the game
    Bonnie will decides to confess because it is a dominant strategy.
    What is the best decision for Clyde?

    Bonnie

    Do not
    Confess
    Confess

    Confess 16,16 0,40


    Clyde
    Do not
    36,0 -2,2
    Confess
    Outcome of the Game

    Bonnie

    Do not
    Confess
    Confess

    Confess 16,16 0,40


    Clyde
    Do not
    40,0 2,2
    Confess

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