Game Theory iimm

Information about Game Theory iimm

Published on July 10, 2014

Author: shivamchauhan273

Source: authorstream.com

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Game Theory: Game Theory GAME THEORY AND THE ECONOMICS OF COOPERATION: GAME THEORY AND THE ECONOMICS OF COOPERATION Game theory is the study of how people behave in strategic situations. Strategic decisions are those in which each person, in deciding what actions to take, must consider how others might respond to that action. GAME THEORY AND THE ECONOMICS OF COOPERATION: GAME THEORY AND THE ECONOMICS OF COOPERATION Because the number of firms in an Oligopolistic market is small, each firm must act strategically. Each firm knows that its profit depends not only on how much it produces but also on how much the other firms produce. The Prisoners’ Dilemma: The Prisoners’ Dilemma The prisoners’ dilemma provides insight into the difficulty in maintaining cooperation. Often people (firms) fail to cooperate with one another even when cooperation would make them better off. The prisoners’ dilemma is a particular “game” between two captured prisoners (Suresh and Ramesh) that illustrates why cooperation is difficult to maintain even when it is mutually beneficial. PowerPoint Presentation: This is a classic trust game, designed to demonstrate the concept of "win/win". It is based on the "Prisoners' Dilemma" in which two criminals who are arrested after a crime are immediately separated into two police cells. The police know that they committed the crime but have no evidence. Each prisoner is approached individually and told that if they confess and implicate the other person, they will get a significantly reduced sentence. The dilemma for each prisoner is as follows :- : The dilemma for each prisoner is as follows :- If I confess, I get a reduced sentence and my colleague gets a full sentence. If I trust him not to confess and keep quiet, but he confesses, I get the full sentence. If I trust him not to confess and keep quiet, and he does the same, we can both walk free. Of course, if we both confess, we both get the full sentence! Unfortunately, we cannot communicate now as we are in different cells and I do not know which way he will go?? The Prisoners’ Dilemma: The Prisoners’ Dilemma Copyright©2003 Southwestern/Thomson Learning Ramesh’ s Decision Confess Confess Ramesh gets 20 years Suresh gets 20 years Ramesh gets 20 years Suresh goes free Ramesh goes free Suresh gets 20 years goes free Ramesh Suresh goes free Remain Silent Remain Silent Suresh’s Decision The Prisoners’ Dilemma: The Prisoners’ Dilemma The dominant strategy is the best strategy for a player to follow regardless of the strategies chosen by the other players. Cooperation is difficult to maintain, because cooperation is not in the best interest of the individual player. Self-interest makes it difficult for the oligopoly to maintain a cooperative outcome with low production, high prices, and monopoly profits. An Arms-Race Game: An Arms-Race Game Copyright©2003 Southwestern/Thomson Learning Decision of the United States (U.S.) Arm Arm U.S. at risk USSR at risk U.S. at risk and weak USSR safe and powerful U.S. safe and powerful USSR at risk and weak U.S. safe USSR safe Disarm Disarm Decision of the Soviet Union (USSR) An Advertising Game: An Advertising Game Copyright©2003 Southwestern/Thomson Learning Pepsi’ s Decision Advertise Advertise Pepsi gets Rs.50 crores profit Coke gets Rs.50 crores profit Coke gets Rs.300 crores profit Pepsi gets Rs.50 crores profit Coke gets Rs.50 crores profit Pepsi gets Rs.300 crores profit Coke gets Rs.300 crores profit Pepsi gets Rs.300 crores profit Don ’ t Advertise Don ’ t Advertise Coke’s Decision

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