...Game Theory and the Prisoner’s Dilemma Business Strategy Antoinette Monteiro Grand Canyon University DBA 815 January 13, 2016 The Definition of Game Theory The game is the object of game theory, which is an interactive situation. There are several players involved in the situation; a game with only one person is a decision problem. According to game theory, the players, their preferences, their information, the strategic actions available to them, affects the outcome. Game theory is conflict and cooperation; the agents are interdependent on the actions of others. These agents are individuals, groups, firms or a combination of these combined. Game theory provides a language to formulate, structure, analyze and understand different circumstances (Turocy and Stengel, 2001 p.4). History and Effects of Game Theory An example of game analysis is the idea of two players dominating the marketplace which was introduced by Antoine Cournot in 1838. Emile Borel, a mathematician proposed a game theory in 1921 and this research was expanded by Neumann in 1928 called the “theory of parlor games.” This theory was solidified in the publication, “The Theory of Games and Economic Behavior by Neumann and Morgenstern. This book pioneers the basic terms and problems that are still in use to this day (Turocy and Stengel, 2001, p.4). The mathematician, John Nash showed that finite games have an equilibrium point in which players choose actions which give the best outcome for themselves...
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...Management Science Summary Definitions by Subject Game theory * Nash equilibrium * In game theory, the Nash equilibrium is a solution 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 their 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 constitute a Nash equilibrium. * Stated simply, Amy and Wili are in Nash equilibrium if Amy is making the best decision she can, taking into account Wili's decision, and Wili is making the best decision he can, taking into account Amy's decision. Likewise, a group of players are in Nash equilibrium if each one is making the best decision that he or she can, taking into account the decisions of the others. * Pareto efficiency * Pareto efficiency, or Pareto optimality, is a state of allocation of resources in which it is impossible to make any one individual better off without making at least one individual worse off. The term is named after Vilfredo Pareto (1848–1923), an Italian economist who used the concept in his studies of economic efficiency and income distribution.The concept has applications in academic fields such as economics and engineering. * Given an initial allocation of goods among...
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...Draft chapter from An introduction to game theory by Martin J. Osborne. Version: 2002/7/23. Martin.Osborne@utoronto.ca http://www.economics.utoronto.ca/osborne Copyright © 1995–2002 by Martin J. Osborne. All rights reserved. No part of this book may be reproduced by any electronic or mechanical means (including photocopying, recording, or information storage and retrieval) without permission in writing from Oxford University Press, except that one copy of up to six chapters may be made by any individual for private study. 2 Nash Equilibrium: Theory 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 Strategic games 11 Example: the Prisoner’s Dilemma 12 Example: Bach or Stravinsky? 16 Example: Matching Pennies 17 Example: the Stag Hunt 18 Nash equilibrium 19 Examples of Nash equilibrium 24 Best response functions 33 Dominated actions 43 Equilibrium in a single population: symmetric games and symmetric equilibria 49 Prerequisite: Chapter 1. 2.1 Strategic games is a model of interacting decision-makers. In recognition of the interaction, we refer to the decision-makers as players. Each player has a set of possible actions. The model captures interaction between the players by allowing each player to be affected by the actions of all players, not only her own action. Specifically, each player has preferences about the action profile—the list of all the players’ actions. (See Section 17.4, in the mathematical appendix, for a discussion of profiles.) More precisely, a strategic game...
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...psychologists call social situations. While game theory has applications to "games" such as poker and chess, it is the social situations that are the core of modern research in game theory. Game theory has two main branches: Non-cooperative game theory models a social situation by specifying the options, incentives and information of the "players" and attempts to determine how they will play. Cooperative game theory focuses on the formation of coalitions and studies social situations axiomatically. This article will focus on non-cooperative game theory. Game theory starts from a description of the game. There are two distinct but related ways of describing a game mathematically. The extensive form is the most detailed way of describing a game. It describes play by means of a game tree that explicitly indicates when players move, which moves are available, and what they know about the moves of other players and nature when they move. Most important it specifies the payoffs that players receive at the end of the game. Strategies Fundamental to game theory is the notion of a strategy. A strategy is a set of instructions that a player could give to a friend or program on a computer so that the friend or computer could play the game on her behalf. Generally, strategies are contingent responses: in the game of chess, for example, a strategy should specify how to play for every possible arrangement of pieces on the board. An alternative to the extensive form is the normal or strategic form. This...
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...View online | Add Investopedia to safe senders list May 27, 2013 Dictionary Investing Markets Personal Finance Active Trading Forex Professionals Tutorials Bag Holder An informal investment term used to describe an investor who holds a position in a stock which decreases in value until it is worthless. Typically, the bag holder will hold the position for an extended period of time in which most of the investment is lost. Investopedia Says: ymbolically, the investor is left holding a bag full of worthless material, representing worthless stock. The bag holder... Learn More Share: A Look At Exit Strategies Traders need to understand what exits are available to them and know how to create an exit strategy that will help minimize... Share: Tips For When To Buy, Sell Or Hold In this article, we'll point to key information that will help you make good decisions under pressure... Share: Top 4 Most Scandalous Insider Trading Debacles In this article, we will look at some landmark incidents of insider trading... Share: The Art Of Selling A Losing Position Let's take a look at why selling is important and then talk about a selling strategy that works for any type of investor.... Share: To Sell Or Not To Sell In this article...
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...Critical Thinking 5 Salvatore’s Chapter 10: a. Discussion Questions: 2 and 8. b. Problems: 1 and 5. 2. a) What are the advantages of the Herfindahl index over concentration ratios in measuring the degree of concentration in an industry? b) What is the disadvantage of both? The Herfindahl index is the sum of the squares of the market shares of each member within the industry and is always less than one. One advantage is that the Herfindahl index gives a look at the larger groups in an industry, while concentration ratio just describes the level of concentration the largest members of a specific industry are presently holding. An advantage is that the larger members will have a greater influence on pricing, marketing and other key indicators that a smaller firm will not. A disadvantage is that the smaller members may be greatly influential, or positioned in a spectacular market, and the Herfindahl index will not be able to describe potential that key player small firms may hold. 8. In what way does OPEC resemble a cartel? How successful is it? OPEC, or The Organization of Petroleum Exporting Countries, which is essentially a cartel of oil exporting partners in order to dominate the market, can manipulate the supply of oil in order to keep prices, and profits, high. The 12 member-nations control nearly 80% of the world’s oil along with 44% of the world’s daily production. They have been accused of keeping oil prices high by producing less oil than the market...
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...Essentials of game theory 1. Introduction Game theory is the study of strategic decision making. More formally, it is "the study of mathematical models of conflict and cooperation between intelligent rational decision-makers."[1] An alternative term suggested "as a more descriptive name for the discipline" is interactive decision theory.[2] Game theory is mainly used in economics, political science, and psychology, as well as logic and biology. The subject first addressed zero-sum games, such that one person's gains exactly equal net losses of the other participant(s). Today, however, game theory applies to a wide range of class relations, and has developed into an umbrella term for the logical side of science, to include both human and non-humans, like computers. Classic uses include a sense of balance in numerous games, where each person has found or developed a tactic that cannot successfully better his results, given the other approach. Modern game theory began with the idea regarding the existence of mixed-strategy equilibria in two-person zero-sum games and its proof by John von Neumann. Von Neumann's original proof used Brouwer's fixed-point theorem on continuous mappings into compact convex sets, which became a standard method in game theory and mathematical economics. His paper was followed by his 1944 book Theory of Games and Economic Behavior, with Oskar Morgenstern, which considered cooperative games of several players. The second edition of this book provided...
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...“Americanism” of Federal Government employees, and recommended termination of those who had confessed to spying for the Soviet Union, as well as some suspected of being Un-American. The American government was afraid that communism would take over as it did in the east, so in retaliation they set out and ran huge propaganda campaigns stating the dangers of communism. Some cultures are defined in cultural or religious terms and the presence of individuals of other religions may be seen as a threat to their national identity and governmental cohesion, consequently, these individuals become a targeted group by either social repression or removed completely from a society through violence or terror inspiring means. Ethnic cleansing is the term to describe this atrocity. An example of this would be the Bosnian war of the early 1990’s as a result of the breakup of Yugoslavia. Following the Slovenian and Croatian secessions from Yugoslavia in 1991, the multiethnic Yugoslavian republic of Bosnia and Herzegovina, passed a referendum for independence on February 29, 1992. This was rejected by Bosnian Serb political representatives. Following the declaration of independence, Bosnian Serb forces, supported by the Serbian government of Slobodan Milošević and the Yugoslav People's Army (JNA) attacked the Republic of Bosnia and Herzegovina in...
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...ECON 301 Practice Final Exam NAME: . Fall 2014 FINAL EXAM PRACTICE QUESTIONS 1. Suppose Demand and Supply for a competitive industry in the short run can be described the following equations: QD=100 – 2P, and QS=40+2P. Suppose further that the total cost curve for a representative firm in the industry is given by TC = 100+4q+q2, with MC=4+2q. a. Sketch a double graph that depicts the market supply and demand in equilibrium in conjunction with individual firm costs and output choice. Does not need to be to scale. Label all of your answers to b. b. Calculate the short-run equilibrium market price, quantity, individual firm output and firm profit level. Show your work. c. Calculate the long-run equilibrium market price, quantity, individual firm output and number of firms in the industry. Draw and label in a new graph the double graph depicting this equilibrium. Page 1 of 5 2. My Uncle Bob claims that a firm should produce (in the short run) until its average cost is at its minimum. He reasons that in order to maximize profit, a firm must minimize it costs of production. Is my Uncle Bob correct? Carefully explain your answer. (Stating a mathematical rule is not sufficient.) 3. A single vendor supplies the popsicles to the beachcombers on a beach in a small resort town on the east coast. Assume that this vendor acts as a single price-monopolist and that the marginal cost per popsicle is always $0.60 The price elasticity of demand is -5 in the month of May...
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...----------------------------------------------------------- p.5 5. Prisoners’ Dilemma ---------------------------------------------------------- p.5-6 6. Daily Example of Competition of Supermarkets ------------------------ p.7-8 7. Daily Example of Competition of Mobile Market ---------------------- p.9-10 8. Daily Example of Penalty Kick in Football Match --------------------- p.11-12 9. Conclusion ------------------------------------------------------------------- p.13 10. Reference -------------------------------------------------------------------- p.14-15 Introduction Game theory is the study of how people behave in strategic situations. Game theory concerns situations in which multiple players make strategically interdependent decisions. The term interdependent means that one person’s behavior affects another person’s well-being. We can make use of game theory on different aspects such as economics, political science and even our daily life. For example, whether TV stations leads to enlarge the market shares on program production usually depends on the subsequent moves of the opponent. Game theory arises from the analysis of competitive scenarios, the problems are called games and the participants are called player. It can tell us how we should behave in a game in order to produce optimal results and it can be as a theory that describes how people actually behave in a game. There are some elements for analyzing and predicting...
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...kin selection, the altruistic gene is looking to reproduce itself. Therefore, altruistic behaviour makes one individual aid another individual who shares the same genes. This way the chances of the individual’s own genes surviving are increased by helping a kin. For kin selection to work, kin recognition is needed to identify if the altruistic helping behaviour is only directed towards a kin. Accordingly, the care of a parent or sibling given to the offspring, would be forwarded by the offspring to their own offspring. Which furthermore would mean that the altruistic trait as well as the genes of the helper would be passed on. The whole of the inclusive fitness theory was summarised by Hamilton’s rule (Hamilton, 1963). Hamilton’s rule describes the fitness of genes shared by kins. For Hamilton’s rule, the benefit minus the costs need to be greater than zero to benefit the altruistic helper as well as the receiver. West-Eberhard (1975) attempted to simplify Hamilton’s rule by suggesting the formula of rb - c > 0, with rb standing for the coefficient of relatedness, b meaning the benefit to the recipient and c representing the cost for the donor. If two individuals are related and one aids the other, the drawbacks of the helper are outweighed by the survival success of the recipient and therefore the higher likelihood of relates genes to be reproduced. apart from many quantitative reproductions, which largely approve of Hamilton’s rule, Waibel et al. (2011) first qualitative by...
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...1. What are the characteristics of a perfectly competitive market? What are the implications for accounting profit in a perfectly competitive market? What about economic profit? Perfectly competitive markets are characterized by low sunk costs, perfect information, no entry or exit costs, no search costs, identical products and an infinite numbers of sellers. In a perfectly competitive market there are many firms and many buyers, all of which are price takers, meaning they have no control over prices. As price takers, firms face a highly (perfectly) elastic demand curve, meaning that they can only change revenue by changing the quantity produced. Firms in a perfectly competitive market will produce where MR = MC. Since firms are price takers, MR = Price. As a result, when marginal cost is equal to marginal revenue, it is also equal to price. If firms are realizing positive economic profits, other firms with similar cost structures will have an incentive to enter the market: one competitive firm’s economic profits indicate that production of that good is more profitable than any other available allocation of resources, causing other firms to invest. Once new firms enter the market, there is an increase in the MARKET, or AGGREGATE supply which will change the price that individual firms face, causing a reduction in the price. Firms will enter until economic profits are zero, at which point the intersection of the price and the marginal cost intersects the minimum of...
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...in the game, and determines the best move for the player in each case. Then, taking these as given future actions, it proceeds backwards in time, again determining the best move for the respective player, until the beginning of the game is reached. Common knowledge A fact is common knowledge if all players know it, and know that they all know it, and so on. The structure of the game is often assumed to be common knowledge among the players. Dominating strategy A strategy dominates another strategy of a player if it always gives a better payoff to that player, regardless of what the other players are doing. It weakly dominates the other strategy if it is always at least as good. Extensive game An extensive game (or extensive form game) describes with a tree how a game is played. It depicts the order in which players make moves, and the information each player has at each decision point. Game A game is a formal description of a strategic situation. Game theory Game theory is the formal study of decision-making where several players must make choices that potentially affect the interests of the other players. 2 Mixed strategy A mixed strategy is an active randomization, with given probabilities, that determines the player’s decision. As a special case, a mixed...
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...everyday human life that is not always thought about. However, just like other aspects in human nature, there are psychologists devoted to studying these interactions. Social psychology can be seen as a book with each chapter explaining a different step in understanding human interactions and the social growth. Beginning with how we view ourselves, then the view of others, how we influence others, their influence on us and finally with how we act in groups, human interactions and social psychology can be understood. The first step in understanding human interactions and social psychology is to understand the self. We cannot expect to understand others if we do not know and understand ourselves first. How many times have we been asked to describe who we are? This question can arise in both a professional setting and in the personal setting. When we state we are a religious person, hardworking, funny or someone who does not believe in something, we are exhibiting our self-concept. Self-concept is the overall understanding of oneself (Feenstra, 2011). Once we have this understanding, we can organize the thoughts just as we do any other information we come across. We all have a way of storing what we know and learn. Organizing and storing information is the only way for us to remember all that we do. When it comes to descriptions of oneself, it is no different. We have what we call self-schemas to organize the information within the self-concept (Feenstra, 2011). If we see...
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...Game Theory Game A game is a formal description of a strategic situation. Game Theory Game theory is the formal study of decision-making where several players must make choices that potentially affect the interests of the other players. Mixed Strategy A mixed strategy is an active randomization, with given probabilities, that determines the player’s decision. As a special case, a mixed strategy can be the deterministic choice of one of the given pure strategies. Nash Equilibrium A Nash equilibrium, also called strategic equilibrium, is a list of strategies, one for each player, which has the property that no player can unilaterally change his strategy and get a better payoff. Pay-Off A payoff is a number, also called utility, that reflects the desirability of an outcome to a player, for whatever reason. When the outcome is random, payoffs are usually weighted with their probabilities. The expected payoff incorporates the player’s attitude towards risk. Perfect information A game has perfect information when at any point in time only one player makes a move, and knows all the actions that have been made until then. Player A player is an agent who makes decisions in a game. Rationality A player is said to be rational if he seeks to play in a manner which maximizes his own payoff. It is often assumed that the rationality of all players is common knowledge. Strategic form A game in strategic form, also called normal form, is a compact representation of a game...
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