...GAME THEORY & ASYMMETRIC INFORMATION LITERATURE REVIEW NATHALIA PALOMINO ID# 0501605 MARCH 1, 2014. FACILITATOR: SHELLEY WHITTLE Introduction This paper will firstly address game theory, Prisoners Dilemma which is a very prominent game and Bargaining. Asymmetric Information is also discussed along with a few examples of how asymmetric information relates to the business environment. The writer gives the reader a basic understanding of game theory and asymmetric information uses in a logical manner. As many opinions are combined to critically analyse the aforementioned. Game Theory A definition of Game Theory or something that appears to be a definition may be applied as such: An analytical or mathematical approach of examining strategic interaction when dealing with competitive situations in business decisions. As Keat, Young & Stephen (2014) did not give a clear definition of Game Theory. This definition stated business decision however, Martin (1978) stated that Game theory has proved useful in only war and economic. He states, “I see that at least three ways in which game theory has proved ‘useful’. First, it has led to practical advice on tactical decision-making in certain well defined situations, especially in military areas involving missile tracking and similar task (where the theory of differential games has led to results equivalent to control theory). Second, it has provided an occupation and amusement for thousands of government bureaucrats...
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...Game Theory On Gallerie Apex Vs Bata Submitted to Abu Reza Mohammad Muzareba Lecturer Department of Marketing University of Dhaka Submitted by Group: Gamers Section: A Batch: 17th Department of Marketing University of Dhaka Submission date: 21th April, 2012 AbuReza Mohammad Muzareba Lecturer University of Dhaka Dept. of Marketing Subject: Letter of transmittal Dear Sir, Enclosed is a report on the Game theory Between Gallerie Apex and Bata. This report is about the internal and external business strategies of the pioneer footwear company Gallerie Apex and Bata. We were assigned to submit this report in 21th April 2012 to be submitted as a term paper for our Business Mathematics 2 course in the 3rd semester of our BBA program, from the department of Marketing of University of Dhaka. We have completed it whilst trying to meet all its broad and specific objectives within the allotted time. We are submitting the report to you only, as our course instructor and will be keeping a copy for any future references. We have organized our findings about the business strategies of the above mentioned trading companies. This paper includes an introduction to the company in focus, in terms of their business strategies and an analysis of those processes with some possible recommendations. It has been completed with a conclusion. At the end of the report...
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...Is Game Theory the Right Kind of Game? Game theory is an analysis of a conflict of interest to find optimal choices that will lead to desired outcome under given conditions. It’s a study of ways to win in a situation given the conditions of the situation. Game theoretic concepts apply whenever the actions of several agents are interdependent. These agents may be individuals, groups, firms, or any combination of these. The concepts of game theory provide a language to formulate structure, analyze, and understand strategic scenarios. Game theory provides a nice conceptual or theoretical framework for thinking about multi-agent learning. It is most appropriate provided that the game is stationary and fully specified, other agents are also game theorists, it can solve equilibrium coordination problem. Given the said conditions, it is rarely hold in real applications because firms think differently from each other. We can say that game theory is the right kind of game if we are able to make use of it properly to win in a given situation. This game theory can provide insight into the strategic options and likely outcomes available to participants in particular situations. From this insight, decision-makers can better assess the potential effects of their actions, and can make decisions that will more likely produce the desired goals and avoid conflict. Considering the situation as a game would lead you to think that everyone is a participant which in reality not all participates...
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...Game Theory∗ Theodore L. Turocy Texas A&M University Bernhard von Stengel London School of Economics CDAM Research Report LSE-CDAM-2001-09 October 8, 2001 Contents 1 What is game theory? 2 Definitions of games 3 Dominance 4 Nash equilibrium 5 Mixed strategies 6 Extensive games with perfect information 7 Extensive games with imperfect information 8 Zero-sum games and computation 9 Bidding in auctions 10 Further reading 4 6 8 12 17 22 29 33 34 38 This is the draft of an introductory survey of game theory, prepared for the Encyclopedia of Information Systems, Academic Press, to appear in 2002. ∗ 1 Glossary Backward induction Backward induction is a technique to solve a game of perfect information. It first considers the moves that are the last 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...
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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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...21/01/09 Start with a brief timeline, including when applications to different areas were first used. Game Theory (i) Game Theory Introduction We begin with a simple, informal example of a game. Rousseau, in his Discourse on the Origin and basis of equality among men, comments: “If a group of hunters set out to take a stag, they are fully aware that they would all have to remain faithfully at their posts in order to succeed, but if a hare happens to pass near one of them, there can be no doubt that he pursued it without qualm, and that once he had caught his prey, he cared very little whether or not he had made his companions miss theirs” To make this into a game, we need to fill out a few details. Suppose that there are only two hunters, and that they must decide simultaneously whether to hunt for a stag or for hare. Each player has a choice between two strategies: (hunt stag, hunt hare). If both hunt stag, each gets half a stag If both hunt hare, each gets one hare If one hunts for hare while the other tries to take a stag, the former will catch a hare and the latter will catch nothing. If we suppose that the utility of catching a stag is 4 and for a hare is 1, then the payoff matrix for the players can be summarised as follows: Stag Hare (2,2) (0,1) (1,0) (1,1) Game theory is concerned with what outcomes arise in equilibrium. An equilibrium outcome is one which consists...
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...Rachel Dillie SOS-360 Final Project March 25, 2014 Game Theory “Game theory is the study of strategic interaction among rational players in an interactive setting” (Stevens, Lecture 1). Elements of a game consist of common knowledge, the players, strategies and payoffs. Every other Friday night my wife and I play cards at our friend’s house and it generally gets more intense as the game and the drinks progress. We mainly play a card game called spades and we play as partners. Common knowledge in this game is every player knows that in order to win you have to bid the correct number of books, meaning you have to guess how many rounds you and your partner can win based off what cards you are holding and what you think the other players are holding in their hands. Each player also is assumed to be an experienced player unless otherwise stated and even if they are it’s easier to guess how the hand will play out. In this card game there is not strictly a pure strategy at play, meaning it doesn’t not involve an act of randomness but a game of mixed strategy. Mixed strategy means using a pure strategy with acts of randomness. I have an idea what the other players will do when it is their turn in the card game but sometimes to force their hand, it is necessary to randomly sacrifice one of your cards to make them display their higher ranked cards. The payoff to a player reflects what that player cares about, not what another player thinks they should care about. Being rational...
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...Situations economists and mathematicians call games 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...
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...Game Theory Themes 1. Introduction to Game Theory 2. Sequential Games 3. Simultaneous Games 4. Conclusion Introduction to Game Theory Game theory is the branch of decision theory concerned with interdependent decisions. The problems of interest involve multiple participants, each of whom has individual objectives related to a common system or shared resources. Because game theory arose from the analysis of competitive scenarios, the problems are called games and the participants are called players. But these techniques apply to more than just sport, and are not even limited to competitive situations. In short, game theory deals with any problem in which each player’s strategy depends on what the other players do. Situations involving interdependent decisions arise frequently, in all walks of life. A few examples in which game theory could come in handy include: ● Friends choosing where to go have dinner ● Parents trying to get children to behave ● Commuters deciding how to go to work ● Businesses competing in a market ● Diplomats negotiating a treaty ● Gamblers betting in a card game All of these situations call for strategic thinking – making use of available information to devise the best plan to achieve one’s objectives. Perhaps you are already familiar with assessing costs and benefits in order to make informed decisions between several options. Game theory simply extends this concept to interdependent decisions, in which the options being evaluated are functions of...
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...“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: In game theory, there are non-cooperative and cooperative games. A non-cooperative zero-sum game has a definite winner and loser. For one to win, one must lose. A cooperative game is where everyone who plays is better off for having played than not having played the game. That is not to say that everyone is equally well off, but simply better off than they were before playing. Hence, even in a cooperative game, some people will likely benefit more than others. To understand why individuals make the decisions they do in a game it is important to consider the personality of the player. Personality is a term used to describe a great many feelings and behaviors. Literally hundreds of personality dimensions or traits have been identified by psychologist over the last 100 years. However, within the past 25 years or so, a consensus has emerged that, for the most part, the human personality can be described by five dimensions or factors. The Big Five personality dimensions include: extroversion, emotional...
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...Managerial Economics 2010 1. A. Design a simple two-company game that illustrates why it might have been in economic interests of the cigarette companies to support the ban. In designing the game, assume that there is no regulation and that the two firms simultaneously choose between advertising and not advertising. Display your hypothetical payoffs in strategic form (see Figure 9.1) and highlight the Nash equilibrium. Explain the intuition for why the firms in your example would favor regulation to ban advertising. Winston |Advertise |Not Advertise | |fff | | | | | |100/100 |160/60 | | | | | | | | | | |160/60 |150/150 | Profits – Advertising Cost from TV (In millions) Advertise Tareyton Not Advertise During the 1960’s, numerous reports started to surface connecting cancer to smoking...
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...extends two-sided matching models with and without money and certain auction models. * The key to the analysis is to extend two concepts of demand theory to models with or without prices. The first concept to be extended is the notion of substitutes. * Our definition ap-plies essentially the Roth-Sotomayor substitut-able preferences condition to a more general class of contracts: contracts are substitutes if, whenever the set of feasible bilateral contracts expands, the set of contracts that the firm rejects also expands. * We show that (a) our definition coincides with the usual demand theory condi-tion when both apply, (b) when contracts are substitutes, a stable collection of contracts ex-ists, and (c) if any hospital or firm has prefer-ences that are not substitutes, then there are preferences with single openings for each other firm such that no stable allocation exists. * We further show that when the substitute condition applies, (a) both the doctor-offering and hospi-tal-offering Gale-Shapley algorithms can be represented as iterated operations of the same operator (starting from different initial condi-tions), and (b) starting at a stable allocation from which a doctor retires, a natural market dynamic mimics the Gale-Shapley process to find a new stable allocation. * The second relevant demand theory concept is the law of demand, which we extend both to include heterogeneous inputs and to encompass models with or without prices. * The law of ag-gregate...
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...choose between open or sealed bid auctions and justify why you are using it. Alpen Bank should utilize open auction. The value of Alpen’s credit card corporation is largely composed with common value, which is dispersed among bidders. Assuming all four bibbers are risk neutral and are experienced bidders, they could adjust their pricing strategy in response to rival’s latest bidding price in an open auction. Such new information will positively affect bidder’s next pricing. Owing to the fierce competition and strong willingness of corporation, the price may be bid up beyond their real value, but to a small extent because of winner’s curse concern. Yet, for the case of sealed bid auction, bidders are more rational since it is a simultaneous game and one could not observe the actions of rivals. To avoid winner’s...
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...Assignment 3 ------------------------------------------------- 1. Some games of strategy are cooperative. One example is deciding which side of the road to drive on. It doesn’t matter which side it is as long as everyone chooses the same side. Otherwise, everyone may get hurt. Driver 2 Left Right Driver 1 Left 0, 0 -1000 -1000 Right -1000, -1000 0, 0 a. Does either player have a dominant strategy? Explain. They both don’t have a dominant strategy. Nobody has a strategy that results in the best outcome or highest payoff to a given player no matter what action or choice the other player makes. b. Is there Nash equilibrium in this game? Explain Nash Equilibrium is a set of strategies from which all players are choosing their best strategy, given the actions of the other players. The Nash equilibrium in this game is the point LL and RR c. Why this game is called a cooperative game? A cooperative game is a game where groups of players ("coalitions") may enforce cooperative behavior; hence the game is a competition between coalitions of players, rather than between individual players. In this case, if both drivers cooperate, they are both better off. 2. a. What is the firm’s Total Revenue? TR= E * A or Area A, J, O, E b. What is the Total Cost...
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...the same applies to firm 2 if it is the lower priced firm. In case they post the same price they each get half the market. Prices can only be quoted in dollar units, such as 0, 1, 2, 3, 4, 5, or 6 dollars. Suppose, furthermore, that costs of production are zero for both firms, and each firm aims to maximize its own profits. (a) Write down the strategic form of this game. (b) Is there a strictly dominant strategy equilibrium of this game? Explain. (c) Is there a weakly dominant strategy equilibrium of this game? Explain. (d) What are the action profiles that survive Iterated Elimination of Strictly Dominated actions? Explain. (e) What are the action profiles that survive Iterated Elimination of Weakly Dominated actions? Explain. (f) Is the game dominance solvable? 2. Two people are engaged in a joint project. If each person i puts in the effort xi , a non-negative number equal to at most 1, which costs her c(xi ), the outcome of the project is worth f (x1 , x2 ). The worth of the project is split equally between the two people, regardless of their effort levels. 1 ECO502/EE698A (a) Formulate this situation as a strategic game. (b) Find its Nash equilibria when i. f (x1 , x2 ) = 3x1 x2 , c(xi ) = x2 , for i = 1,2. i ii. f (x1 , x2 ) = 4x1 x2 , c(xi ) = xi , for i = 1,2. (c) In each case, is there a pair of effort levels that yields both players higher payoffs than the Nash equilibrium effort levels? 3. (Hotelling competition) Consumers are uniformly distributed along a boardwalk that...
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