Essay on Thoughts on Game Theory in Economics
Game Theory Essay
Essay On Game Theory
Game Theory and Economic Analyst
Ultimatum Game Theory
The Theory Of Game Theory
Game Theory Applications in Business
Game Theory On Non Cooperative Games
Games Theory in International Relations
Game Theory Reflection
Theory Of Games And Economic Behavior Essay
Game Theory
Theory Of Games And Economic Behavior
The Theory Of Game Theory
Game Theory Essay example
Game Theory : Basic Concepts, History And Models
Game Theory: An Introduction To The Game Theory
Entry Deterrence in Game Theory
A Study On Game Theory
Web & Social Media Analytics Previous Year Question Paper.pdf
Essays On Game Theory
1. Essay on Thoughts on Game Theory in Economics
According to Wikipedia, game theory is a branch of applies mathematics that is used in the social
sciences (mostly economics). Game theory can also be defined as a theory of competition stated in
terms of gains and losses among opposing players. Game theory tries to mathematically imprison
behavior in strategic situations, in which a person's success in making choices depends on the
choices of others. Traditional application of this theory attempt find equilibrium in these games, in
equilibrium. Every player of the game has adopted a strategy that they are unlike (Game theory ) To a
psychologist, what is known is game theory to economists is known are the theory of social
situations which a very accurate description of what game theory...show more content...
) General equilibrium theory: this deals with trade and production with a large amount of individual
consumers and producers. This theory is mostly used in the macroeconomic analysis of broad
based economic policies such as monetary or tax policy, to analyze the stock market, and to study
exchange and interest rates and other prices. Recently, political economy has emerged as a
combination of general equilibrium theory and game theory which the privet sector of the economy
is modeled by general equilibrium theory (What is game theory? )
Mechanism design theory: this theory differs from game theory because game theory takes the rules
of the game as they were given while mechanism design theory, ask about the consequences of
different types of rules which naturally relies on game theory. This theory addressed questions about
the design of compensation wage agreements that effectively spread risk while maintaining
incentives, and the design of auctions to maximize revenue, or achieve other goals design of
compensation and wage agreements that effectively spread risk while maintaining incentives (What
is game theory? ).
Branches of game theory: The
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2. Game Theory Essay
Game Theory was said to have been introduced by Emile Borel in 1921. Borel was a French
mathematician who published papers on the theory of games. From this standpoint and according to
the article "Game Theory", Borel could have been named the "first mathematician to envision an
organized system for playing games" however; evidence has shown that Borel did not develop his
ideas any further. This is the reason why most historians have given credit to John Von Neumann.
Von Neumann was born in 1903 in Budapest, Hungary. His first mathematical paper was published,
along with the help of his tutor, when he was 18. Von Neumann went on to study mathematics in
college and eventually earned his PhD in mathematics with a minor in both physics and...show more
content...
In "Game Theory Models and Methods", the prisoner's dilemma is said to be the most widely
known example of game theory. This dilemma was invented by Albert Tucker of Princeton
University in 1950. In this dilemma, one is to imagine two people arrested under suspicion of
having committed a crime together. The police do not have sufficient evidence to convict the
criminals. They are placed in two separate rooms and the police visit each suspect, offering a deal.
The deal is basically, whoever gives up evidence on the other person will go free. If neither
suspect takes the offer, they are working against the police and both will receive a small
punishment because of lack of evidence. Both suspects appeared to have won because neither
took the offer, but were given a small punishment. However, if one suspect takes the offer and
betrays the other, the one who gave up the evidence will gain more because he will be set free and
the one who remained quiet will get the full punishment. However, if both suspects betray each
other, they will both receive punishment. From this example, we learn that each suspect was given
"a choice between only two options, but cannot make a good decision without knowing what the
other one will do" (Game Theory Models and Methods). This strategy is still used today not only be
police officers and detectives, but it is also used in some of the criminal television shows,
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3. Essay On Game Theory
Game Theory was devised in the 1950's and slowly grew into the field of biology and today it is
even used in computers and is one of the most important tool in every field. Game Theory is a
psychological theory which usually applies to social conditions, which affect the behavioral and
decision making of an individual. This theory is vast and deals with how a group reacts and
interact. This theory is used in mostly all major fields such as business, biology, science, logic,
computer etc.
A number of laws and theories are used to support the game theory such as zero sum games where
one individual gains exactly equal gains exactly equal net losses of other individuals. Probability is
one of the major theory which heavily supports the game theory,...show more content...
They can study their strategies and decisions they make to buy and sell products , how they engage
during transactions and what outcomes that result in the end.
Game theory has three main branches: The mechanism design theory, the general equilibrium theory
and the decision theory.
The Mechanism design theory gives analysts flexibility, as it lowers the restrictions on variables.
This theory shows the consequences of different regulations and guidelines and how groups of
people can take advantages when using certain strategy in different situations. We can look at the
examples on auctions where sellers can identify the risks and avoid them completely.
The General equilibrium theory lays down general guidelines to set up rules and restrictions looking
at the behavior of people. It is broadly used in economics such as in making tax policies, voting,
which intensives to apply and to interpret stock exchanges.
The Decision theory is a game generally used for a single person. It brings the possible outcomes of
the choices of a person where high risks equals maximum profits and low risk equals low profits.
Probability and bayer laws are generally used for the decision
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4. Game Theory and Economic Analyst
Game Theory and Economic
Analysis
Game Theory and Economic Analysis presents the wide range of current contributions of game
theory to economics. The chapters fall broadly into two categories. Some lay out in a jargon–free
manner a particular branch of the theory, the evolution of one of its concepts, or a problem that runs
through its development. Others are original pieces of work that are significant to game theory as a
whole.
After taking the reader through a concise history of game theory, the contributors discuss such topics
as:
the connections between Von Neumann's mathematical game theory and the domain assigned to it
today since Nash the strategic use of information by game players the problem of...show more
content...
DIMAND AND MARY ANN DIMAND
2 Rupture versus continuity in game theory: Nash versus Von
Neumann and Morgenstern
CHRISTIAN SCHMIDT
PART II
Theoretical content
3 Bluff and reputation
SYLVAIN SORIN
4 An appraisal of cooperative game theory
HERVÉ MOULIN
5 The coalition concept in game theory
SÉBASTIEN COCHINARD
6 Do Von Neumann and Morgenstern have heterodox followers?
CHRISTIAN SCHMIDT
6. Ultimatum Game Theory
In this paper, the efficiency of the ultimatum game theory was assessed to resolve water conflicts
between agricultural and environmental water needs in Zarrinehroud River Basin, northwest of Iran.
Irrigated agriculture and its water needs were to be adjusted in order to mitigate the downstream
Lake Urmia drying condition. The great need of food production in the region and in the whole
country in one hand, and the worsening environmental impacts due to the drying lake, on the other
hand, are clearly conflicting issues.
Extensive ultimatum game theory with two financial strategies consisting of the purchase of irrigation
water vs. cutting off water allocation to irrigated agriculture without any payment (dictatorship
strategy) was evaluated.
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7. The Theory Of Game Theory
Game theory is one to more complexed topics but reveals a clear understanding from different
scholars. Don Ross explained that game theory is the study that interacts with the different choices
of economics agents which bring forth many different outcomes with the point to the preferences of
those agents, where the outcomes in question might have been intended by none of the agents (Ross,
2016). The properties that game theory considers in economic situations include two or more
'economic actors ' – that is, two or more firms, individuals, political parties, etc. Each individual
economic actor has a set of decisions they can make – what price to charge, how much to save,
whether to move right or left, etc. Each individual economic actor has a 'goal ' or payoff, such as
profit maximization, maximize happiness, minimize loss, etc.
The decisions made by one economic actor not only affects her payoff, but the payoff of one or
more other economic actors. Schmidt (2003) states that Game theory was invented in order to satisfy
a mathematical curiosity. The difficulty at the outset was to find a theoretical solution to the
problem posed by uncertainty in games of chance (Schmidt, 2003). He further stated that the first
completed formula of mathematical strategies was sketched by Boral. The application of game
theory to economics posed a more fundamental problem due to the distance of separating several
major concepts articulated in Theory of Games and Economic Behavior. Economics
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8. Game Theory Applications in Business
Game Theory
Orton K.C. Tsun
April 1, 2012
Introduction As individuals, we make decisions throughout the day weighing the cause and effect,
cost and benefit, risk and impact of our actions on ourselves and upon others. When taken to a
larger scale, as the manager of a team, the CEO of a corporation, or the leader of a nation, the
decisions exponentially increase in impact and importance.
Game Theory, the analysis of the concepts used in social reasoning when dealing with situations of
conflict (Rubinstein, 1991), is one of many methods used to provide rational strategies towards the
making of decisions. Game theory provides logical and mathematical models towards
decision–making which are applied to real–life situations such as...show more content...
The objective is to determine the most profitable (revenue minus cost) product based on its attributes
relative to the market but also accounting for what the competition is selling comparably. Because of
the complexity there are a great deal of parameters to take into consideration as part of the "game
form" including the number of manufacturers in the market, number of products offered by the
manufacturer, number of products on the market, number of segments in the market, engineering
costs of a given product by a manufacturer, market demand for a given product, market share of the
manufacturer (brand influence), and the probability of another manufacturer producing a similar
product. One assumption factored into the game is that strategically a competitor would consider not
entering a market (production of a given product) saturated with similar products. From the above
mentioned examples, we can validate that Game–Theoretic modeling plays an invaluable role as a
metaphorical approach to strategic management (Saloner, 1991). Game Theory provides measurable
simulations of what could happen to enable rationalization of the best course of action without
incurring the heavy costs of a true trial and error method. With that said, as noted in our introduction,
while game theory
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9. Game Theory On Non Cooperative Games
Haejung Yoon
Mr. Cetron pd.8
Game Theory
Game theory states that the actions of one participant depend critically on the actions of other
participants. Game theory includes different types of games, such as, cooperative/non–cooperative,
symmetric/asymmetric, zero–sum/ non–zero–sum, simultaneous/ sequential, and more. However,
this paper will focus mainly on non–cooperative games, zero–sum games, puzzles, and paradoxes. In
zero–sum games, a player will only benefit at the equal expense of others. Non–cooperative games
are games in which players make decisions independently; they make decisions without any
discussions with other players. These ideas are seen in the Nash equilibrium the Prisoner's dilemma,
games and puzzles (tic–tac–toes, the blue–eyed suicides), and paradoxes (Parrondo's Paradox,
Unexpected Hanging Paradox). John Nash's works in game theory have provided a greater
understanding to the factors that control chance in daily life. He considered non–cooperative games
in his doctoral thesis, and in 1950 proved his acclaimed theorem that equilibria always exists in any
such game (p.396, Elwes). This is known as the Nash equilibrium. The Nash Equilibrium is the
solution concept of non–cooperative games, where each player knows the equilibrium strategies of
the other players, and players have nothing to gain by changing only their own strategy. This helps
to formally predict how a game will be played. For example, consider the Prisoner's Dilemma. There
are two
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10. Game theory is essential in strategic decision making. It is a necessary tool or guideline needed for
decision making in situations involving interdependence (Thomas & Maurice, 2010). A time in
which it was necessary and vital to make some strategic decisions was with the planning and
coordinating of my wedding. Likewise, when my husband and I decided to get married, we both had
different visions about how the planning process should take place in addition to the size of the
budget. Unbeknownst to us, we never envisioned that we would encounter as many challenges in
making as many vital decisions as we did.
First and foremost, our first decision came with should we take it upon ourselves and plan our
wedding without the assistance of a wedding planner and just take to the stage and plan it
ourselves from beginning to end. Knowing that both my husband and I worked very demanding
hours and schedules, we wondered how we would get it all done. On my end, I was all for paying
someone else to facilitate and coordinate our wedding and take our thoughts and dreams and turn
them into reality. However, my husband was looking at not hiring a wedding planner more so from
the perspective in sparing our budget and saving more money and he thoroughly believed the money
spent on the wedding planner could 've been spent elsewhere as he thought my work in event
planning would prove sufficient enough. Despite, the fact that I worked just as many hours as he
did, I did not think
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11. Games Theory in International Relations
GAMES THEORY IN INTERNATIONAL RELATIONS
1.0 INTRODUCTION
The field of game theory came into being with Г‰mile Borel 's researches in his 1938 book
'Applications aux Jeux des Hazard', and was followed by the 1944 book 'Theory of Games and
Economic Behaviour' by John von Neumann and Oskar Morgenstern. This theory was developed
extensively in the 1950s by many scholars. Game theory was later explicitly applied to biology in the
1970s, although similar developments go back at least as far as the 1930s.
Game theory is a branch of applied mathematics that is used in the social sciences, most notably in
economics, as well as in biology. It is also used in engineering, political science, international
relations, computer science, and...show more content...
They include the player/decision maker, strategies, rules and pay off.
3.1Player/Decision Makers.These are parties involved in competitive or cooperative situation. These
parties could be nations, multinational corporations or even regional blocs.
3.2Strategies.These are the plan(s) by state actors designed to achieve a particular long term aim. It
could be aimed at pursuing their own interests at the expense of others leading to conflict or
competition.
3.3Rules.These are the regulations or principles governing conduct or procedure within a particular
area of activity amongst players. It is expected that players must coordinate their potential strategies
within the rules when pursuing their potential payoffs.
3.4Pay off/Outcomes.These are result(s) of particular choices made by players at a given point in the
game/situation.
4.0 TYPES OF GAMES
There are various types of games based on their classification. They are the cooperative or
non–cooperative, symmetric, zero sum, one player, many player and sequential games.
4.1Cooperative or non–cooperative.A game is cooperative if the players are able to form binding
commitments. For instance the legal system requires them to adhere to their promises. In
non–cooperative games this is not possible. Often it is assumed that communication among players
is allowed in cooperative games, but not in non–cooperative ones. This classification on two
13. Game Theory Reflection
My independent study on Game Theory this past semester has been an extremely rewarding
experience. It has pushed me to learn more about myself, to approach the world with new
perspectives, to see similarities across discipline, and to cross–apply knowledge to improve my
models. I was drawn into Game Theory because of its wide range of applications across academic
disciplines like economics, biology, and history as well as in real life situations like bargaining and
getting loans. In my independent proposal and my first blog post, I have established exploring the
real world applications of Game Theory as one of my major goals this semester. Since the start of
September, I've been watching Game Theory courses on Yale Open Courseware and doing weekly
problem sets accompanying the lectures. The diverse examples Professor Polak used to illustrate
complex concepts confirmed my previous beliefs that Game Theory is not an isolated and purely
theoretical subject, but is developed to answer human curiosities and our needs. These lectures not
only taught me to draw payoff matrices and decision tree to figure out best responses to hypothetical
situation but also to see the similarities in life situations through the perspectives of simplistic
mathematic models. For example, the generalized "prisoner's dilemma" model that involves two
players and two strategies can be used to explain the necessity of roommate contract, procrastination
in group projects, or grades inflation in the
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14. Theory Of Games And Economic Behavior Essay
Introduction I first was interested in game theory after having learned about the topic in economics
during my junior year. I fell in love with economics and game theory was a major aspect of
microeconomics. Furthermore, the notion that a company could decide what course of action to
take based simply off of a chart astounded me. It caused me to truly wonder how such actions could
occur and how game theory truly worked. It simply begged the question, what was the underlying
basis of game theory and how did a company choose the most probable option that would increase
their profits.
Game theory, by definition, is the branch of mathematics concerned with the analysis of strategies
for dealing with competitive situations where the outcome of a participant 's choice of action
depends critically on the actions of other participants. The theory was first presented via a proof by
John von Neumann. This was followed by the book Theory of Games and Economic Behavior,
co–written with Oskar Morgenstern and published in 1944, establishing the field of game theory.
The theory holds a prominent place when having been applied in the field of economics and has
produced various methods for advancement and analysis. Most notably, to me, the theory provides
an ability to look into how businesses will act, especially those that act as that of a duopoly. Such a
market structure allows an in–depth view that would allow a business to make a decision based on
analyzed data. Being that I am
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15. Game Theory
Game theory – descriptive, normative or prescriptive?
Going through life we often are surprised by the different ways how people think, make decisions
and interact. We believe that most of us are rational human beans (to some extent) and, therefore, our
decisions should be grounded in analysis of the situation, our experience and intuition. Therefore, the
human mind can be seen as an incredibly complicated machine that runs series of theoretical
simulations of possible situations (often subconsciously) to find the most optimal course of action,
taking into consideration the possible strategies of others. When the decisions are important to us
and the reasoning process is conscious, we engage in strategic thinking. It has always been...show
more content...
In the Oxford English dictionary the definition of game theory is as follows the branch of
mathematics concerned with the analysis of strategies for dealing with competitive situations where
the outcome of a participant's choice of action depends critically on the actions of other participants.
Game theory has been applied to contexts in war, business, and biology. From the definition we see
the important factors are the mathematical analysis, different strategic options with different
outcomes (pay–offs) and the interdependence of the players. Therefore it indeed looks like the so
desired
theory described in the introduction of the essay, however, what does it actually deliver, that is the
main focus of this essay. Modern game theory has been developing now for more than 50 years
since the book Theory of Games and Economic Behavior by John von Neumann and Oskar
Morgenstern was published in 1944. However, it must be noted that some important efforts in
explaining the strategic choices – strategic decision making has been done also before, for example
by Zermelo. Konong, Kalmar and Borel. Game theory has evolved considerably since the
publication of von Neuman and Morgenstern's book and what is interesting the theory has
developed far beyond its initial mathematical boundaries. This is due in a large part to contributions
in the 1950s from John Nash (1950, 1951). However, it was in the 1970s
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16. Theory Of Games And Economic Behavior
Abstract
In the year 1944, with John Von Neumann and Oskar Morgenstern publishing their paper on Theory
of Games and Economic Behavior, foundations of Game Theory was laid. This paper is an attempt at
condensing the fundamentals required to help decision–making at early stages of Project
Procurement. With the advent in implementation of Game Theory in real world, new theories have
emerged with Game Theory as their stepping stone. Simple yet important concept such as Nash
Equilibrium, Payoffs will be discussed to give the reader and idea they can improve and customize
upon according to their scenario. One strong recommended reading is a great introductory book on
the topic, Game Theory: A...show more content...
It is important that we understand why its creator felt this way, according to them the reason for this
is simply that economics is far too difficult a science to permit its construction rapidly, especially in
view of the very limited knowledge and imperfect description of the facts with which economists are
dealing. Only those who fail to appreciate this condition are likely to attempt the construction of
universal systems.
The "Game" doesn't always equate to the procedure that results in winning or loosing (which can be
the case many a times). Here the connotation is merely utilized to provide a sense of structure
involving strategies and plans to the whole process. As seen in a general Game, there are players and
payoffs. Players have their strategies for particular situations, which may or may not depend on the
other players' moves. One interesting nature of game theory is seen when deciding moves using
predefined strategies; our moves can be independent of those of the opponent's, however, results
occurring due to the combination moves are totally interdependent. This can be confusing but with
understanding this underlining concept of game theory comes into light easily. This phenomenon is
known as Strategic Interdependency. Simply described as: What I do affect your outcome, what you
do affects my outcome.
To understand such subtle complexities, one must be familiar with the knowledge required about
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17. The Theory Of Game Theory
Brief introduction
In this mathematical investigation, game theory is discussed. Game theory is the area of
mathematics that considers methods of selecting best strategies in situations of conflict of interest. It
is applicable to psychology, economics, politics, warfare. It is the practical nature of this subject that
makes it truly interdisciplinary. It is the practical nature that makes it, in my opinion, worthwhile
studying. Game theory is closely linked to probability and statistics, in fact these two subjects are
used as tools by game theorists to develop their models. A study that began with John Von
Neumann in 1928 and that keeps on progressing. There are plenty of famous game theory
problems but for this investigation I refrained from using them. The purpose of this work is not
to deliver the very essence of the subject in a dozen pages and by the end make an enlightened
Strategist out of the reader; it is to show how this subject is useful and to present it as simple and
as approachable as possible. All problems this work contains are original. What is a game, strategy,
player?
To better understand game theory, one should first get a clear idea of what kind of situation this
subject is applicable to. For a problem to be tackled using the many principles of the theory, starting
from very basic arithmetic to complex mathematics, it first needs to have distinct persons or players.
A player, unlike in the everyday world, is an individual or group engaging in the
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18. Game Theory Essay example
Assignment 2: Planning and Playing a Game
Objectives:
Learn how individuals contribute to teamwork
Experience some of the features of group work and teamwork
Understand what managers and organizational developers do to transform
groups into teams
Articulate the tangible benefits (both quantitative and qualitative) of
high–performing teams
Finish with an interest in learning more about these concepts and
techniques to apply what you learn
Background: For this assignment, you will plan and play a game with your family or friends, or at
work based on the idea of the classic prisoner's dilemma. If you have had a class on game theory, you
will be well aware of this...show more content...
Instructions
Review in your textbook, the Big Five personality dimensions, pp. 74–76, and then consider the 3.1
Personality Insights inventory Select four or five friends, coworkers, or family members and have
them take the personality inventory Plan and play a game with the participants Write a 5–10 page
paper that addresses the assignment questions below
As you plan and play your game, you will negotiate the type of game you want to play and your role
in it. Strive to determine some personal characteristics of the game participants a head of time, or by
observing them. Consider how the personal characteristics of the individuals in the game manifest
themselves in the informal roles they assume during the planning and execution of the game.
For the purpose of this assignment, you will want both a cooperative and a competitive element. To
do that, you can form several groups to compete and cooperate with each other, or you can have
individuals in one group compete and cooperate. You can use rewards and/or punishments to create
the competitive/cooperative motivations.
Evaluation: When groups are formed, we want to consider how organizational structures, processes,
19. and situations impact on group motivation, politics, and goals achievement. Alignment of all of these
structural, personal, and interpersonal components will help to ensure that the group will meld into a
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20. Game Theory : Basic Concepts, History And Models
Shuwen Shen Mr. Li ITS 102 April, 23, 2016 Game Theory: Basic Concepts, history and Models
In ancient China, during an era known as "Warring States Period", China was divided and
conquered by independent seven warring states. King Wei of Qi, who was the emperor of Qi
State, and the general Tian Ji, were both horse racing fans. They always bet heavily on winning
and losing. This is just the background of Tian Ji's horse racing strategy. Now here comes the
dilemma. The horses can be divided into three different speed classes: fast, medium and slow.
Since the king's horses are always better than Tian Ji's, Tian Ji always lose the game. However,
Tian Ji can choose the order of the horses to compete. There are three rounds of a race and anyone
who wins two rounds can be the final winner. This is one of the most well–known and popular
stories in China today, which was originally recorded in the Records of History, biography of Sun
Bin (Si–Ma 65). Many people may have heard this story when they were still in elementary school.
In order to get rid of this dilemma, Sun Bin, who is Tian Ji's friend, came up with a clever and
perfect method, that is, pitting the slow horse against the king's fast horse, fast horse against the
king's medium horse, and medium horse against the king's slow house. After finishing all three
rounds, although Tian Ji lost the first race, he would win the following two rounds so that he would
be the winner of the whole race. Fig. 1. Tian Ji's horse racing
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21. Game Theory: An Introduction To The Game Theory
Game Theory
''Game theory'' is a study of conflict and cooperation between rational and intelligent
decision–makers. It is mainly used in economics, but recently has been used in political science
and psychology, and computer science and biology. Game theory seeks to say that any social
problem can be formulated into a game, and then played out to find the best possible solution to the
problem. I recently took a Coursera class entitled ''Welcome toGame Theory'' by Michihiro Kandori
from the University of Tokyo. The course was an early look into game theory, going over the
history and basic principles of it, offering some simple situations game theory might help to solve,
such as a traffic jam, or an actual game like poker. Moden game theory was developed by Jogn von
Neumann, via a paper he published in 1928, utilizing a fixed–point theorem on continuos mappings
into...show more content...
It was split up into four weeks, with the first week discussing the history of game theory, as well as
laying out problems that you can use game theory to solve. Week one also introduced a simple card
game, which is played by two players and is meant to demenstrate the concept of ''nash equlibrium'',
named after the famous mathematician John Nash Jr. Nash equlibrium is a concept of a
non–cooperative game involving two or more players, in which each player is assumed to know the
equilibrium strategies of the other players, and no player has anything to gain by changing only his
own strategy. If each player has chosen a strategy and no player can benefit by changing strategies
while the other players keep theirs unchanged, then the current set of strategy choices and the
corresponding payoffs constitutes a Nash equilibrium. This is one of the founding principles of game
theory, and is ulitilized in finding the best possible solution to social problems you may
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22. Entry Deterrence in Game Theory
Introduction
Game theory, in this essay, means the study of strategies adopted by rational decision–makers of
economic agents in specific situations, analyzing outcomes of mathematical models of conflict and
cooperation (Myerson, 1991). Its basic elements include players, actions, information, strategies,
payoffs, outcome and equilibrium, among which, players, strategies and payoffs are the most
essential; actions and outcome are called as rules of the game (Rasmusen, 2000). The objective of
the model is to establish equilibrium with the use of rules of the games.
Nash equilibrium, an important terminology in Game theory, is the situation when two or more
players are involved in the game, and each player is supposed to know other players'...show more
content...
If such threat works, B will be able to remain the monopoly profit without paying the 100 wager;
otherwise, B will face the competition from A. Generally, the higher the wager is, the more credible
the threat becomes.
In the above two situations, the hypothesis is all the structures, rule of the game and payoffs are
disclosed to all the players. In the following section, entry deterrence in static games of incomplete
information will be analyzed. Suppose incumbent has two types: high costs and low costs.
Incumbent owns complete information, knowing its type selected; while entrant only has
incomplete information, knowing that incumbent has two costs types but is unclear about what type
has incumbent chosen. Table 2 shows the different strategies in different types for A and B.
Table 2
Payoffs to: (A–––entrant, B–––incumbent)
Suppose the probability of A knows B as a high costs competitor is x; the probability of low costs
will be (1–x), xв€€(0,1). When A chooses to enter, its expected benefit will be u1= 40x+ (1
–x)
(–10) =50x–10; when A decides not to enter, its expected benefit u2=0x+ 0 (1–x) =0. Therefore, for
A, only when u1≥ u2 or 50x–10≥0, that is when the probability of high costs is larger than
20%, A will choose to enter. Postulate that x≥ 20%, the Bayesian Nash equilibrium is: (enter,
collude) in high cost or (enter, fight) in low cost. If x<20%, then the Bayesian Nash
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23. A Study On Game Theory
In economics, there are many subfields of study and one that has the most difficulty and importance
is the study of game theory. From the beginning of economics, mathematical concepts and analyzing
people's behavior have been tools to determine the choices people will make in a buyer and seller
market. The most influential person in game theory is without a doubt John Nash. John Nash came
up with the Nash equilibrium, which is used in everyday Intro to Game Theory courses across the
United States. However, Nash's idea for non–cooperative games came about in the mid–20th century,
so before then there were many other game theorist who provided their outlook on how to solve
complex games. Furthermore, there are many economist that are...show more content...
Hence, Nash's creation of non–cooperative game theory should be looked upon as game theory's
most brilliant idea ever thought of in economics. On the contrary, the father of economics, Adam
Smith, introduction to economic theory by using "linear algebra on prices and quantities in a vector
space of commodity and allocations", which made him very popular during his time (Myerson).
Also, Adam Smith influenced other economist to apply mathematics to their own theories. The Nash
equilibrium can be a useful tool to conduct an analysis on incentives in social institutions and also
how simplistic the Nash equilibrium can be, and it is obvious to say how astonishing that this
concept was not thought of before John Nash. Moreover, the first application of Nash equilibrium in
a mathematical model comes from Augustin Cournot. In 1838, Cournot published a book on
economics that produced the theory of oligopolistic firms that includes monopolists and perfect
competitors. On a side note, Cournot is known for being the founder of oligopoly theory, "but to
give him credit for non–cooperative games would be to confuse its methodology with its general
formulation" (Morrison). He came up with the oligopoly equilibrium by conducting an analysis on
firms operating in a
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