02-05-2012, 03:28 PM
Game Theory
Game Theory.ppt (Size: 275.5 KB / Downloads: 126)
The study of rational behavior among interdependent agents
Agents have a common interest to make the pie as large as possible, but
Agents have competing interests to maximize their own share of the pie.
An agent’s rational decisions require anticipating rivals’ responses
These expectations are not perfect, so uncertainty is a necessary feature of games
Conclusion:
Tchaikovsky confesses also
Both get 8 years, even though if they cooperated, they could get off with one year each
For both, confession is a dominant strategy: a strategy that yields a better outcome regardless of the opponent’s choice
Equilibrium
Nash Equilibrium: Neither player has an incentive to change strategy, given the other player’s choice
Both confess is a Nash Equilibrium
Both don’t confess is not a Nash Equilibrium, rival will always want to renege
Dominant Firm Game
Either firm can announce an output level (lead) or else wait to see what the rival does and then produce an amount that does not saturate the market.
Bargaining Techniques
Note the similarity between these techniques and the games
Role of information
Role of history
Role of the other party’s objectives, actions
Role of cooperative vs competitive bargaining environment
Game Theory.ppt (Size: 275.5 KB / Downloads: 126)
The study of rational behavior among interdependent agents
Agents have a common interest to make the pie as large as possible, but
Agents have competing interests to maximize their own share of the pie.
An agent’s rational decisions require anticipating rivals’ responses
These expectations are not perfect, so uncertainty is a necessary feature of games
Conclusion:
Tchaikovsky confesses also
Both get 8 years, even though if they cooperated, they could get off with one year each
For both, confession is a dominant strategy: a strategy that yields a better outcome regardless of the opponent’s choice
Equilibrium
Nash Equilibrium: Neither player has an incentive to change strategy, given the other player’s choice
Both confess is a Nash Equilibrium
Both don’t confess is not a Nash Equilibrium, rival will always want to renege
Dominant Firm Game
Either firm can announce an output level (lead) or else wait to see what the rival does and then produce an amount that does not saturate the market.
Bargaining Techniques
Note the similarity between these techniques and the games
Role of information
Role of history
Role of the other party’s objectives, actions
Role of cooperative vs competitive bargaining environment