this is public policy theory

1. PUBLIC
POLICY Rahma Yuni (13.017)
Corporate Communications

2. GAME THEORY
What it is
• Game theory is a tool used to analyze strategic behavior by taking into
account how participants expect others to behave. In other words, game
theory is useful in understanding collective human activity as the outcome
of interactive decisions.
Why is it happening
• Game theory is often happen to prescribe in a subtler way. Sometimes
game theory is used to figure out what it is likely to happen in a strategic
interaction, so a person or company can then try to change the game to
their advantage
How it works/Example
• Economists use game theory to understand the behavior of firms in an
oligopoly specifically in regards to price fixing, price wars, collusion, etc.

3. Prisioners Dilemma
What it is
• Cooperation is usually analysed in game theory by means of a non-zero-sum game called the
"Prisoner's Dilemma“. The two players in the game can choose between two moves, either
"cooperate" or "defect". The idea is that each player gains when both cooperate, but if only one
of them cooperates, the other one, who defects, will gain more. If both defect, both lose (or gain
very little) but not as much as the "cheated" cooperator whose cooperation is not returned.
Why is it happening?
• “Prisoner's dilemma" may be happened to situations not strictly matching the formal criteria of
the classic or iterative games
How it works/Example
• Google and many of their products forces industries and companies to rethink their strategy.
Google Navigator forces Nokia to release Ovi Maps for free. Android forces Apple to become a
little bit more open regarding their app verification policies. Google Docs forces Microsoft to
create a web application of Office.
• In the satellite navigation system industry exists one business model and therefore all competitors
sell their devices to the customer. In this situation, most companies sit tight and enjoy the ride.
Google has a high interest in mobile internet and one element is satellite navigation. By offering
Google Navigator with more advanced features for free, manufacturers must rethink their
business models, innovate and adept quickly.

4. Bounded Rationally
What is it
• Bounded rationality is the notion that in decision making, rationality of individuals
is limited by the information they have, the cognitive limitations of their minds,
and the finite amount of time they have to make decisions; it complements
rationality as optimization, which views decision making as a fully rational process
of finding an optimal choice given the information available.
Why is it happening?
• Another way to look at bounded rationality is that, because decision-makers lack
the ability and resources to arrive at the optimal solution, they instead apply their
rationality only after having greatly simplified the choices available. Thus the
decision-maker is a satisfy, one seeking a satisfactory solution rather than the
optimal one.
How it works/Example
• Ways to deal with generalized situations. eg. check Consumer Reports when
buying an appliance.

5. Assymetric Information
What it is
• Asymmetric information is one of the main causes of a market failure. Asymmetric
information occurs when one party in a transaction (either the buyer or the seller)
has more, or better information about the product than the other party.
Why is it happening?
• Asymmetric information occurs when information is held by one, but not all, of the
parties to a transaction or When the market doesn’t function properly and usually
stops working altogether.
How it works/Example:
• One of the most commonly used examples is used and new cars. Although a new
car may be worth $25,000 and then the seller wishes to sell it almost immediately
after purchase the value drops drastically. This is because buyers are wary that
something may be wrong with the car even though the seller just decided they
didn't want it anymore. In this case, the seller of the car has more information
than the buyer and the buyer has to trust the seller to tell them all of the pertinent
information in relation to the car.

6. Rational choice theory
What it is
• The rational choice theory, also known as choice theory or rational
action theory, is a theory for understanding and often modelling
social and economic as well as individual behaviour. Itis the main
paradigm in the currently-dominant microeconomics school of
thought.
Why is it happening?
• When People will choose the option that gives them the most utility.
Utility meaning what gives them the most happiness.
How it works/Example
• You buy a harley davidson motorcycle for $30,000. It looks good, but
runs like crap and requires 2 hours of maintenance per hour of riding
time. You buy a japanese motorcycle for $10,000. It looks good, runs
good, doesn't require constant maintenance but is made mostly of
plastic.
Taking rationality into account, what would be the better choice?

7. THANK YOU!