Game Theory
Orton K.C. Tsun
April 1, 2012
Introduction As individuals, we make decisions throughout the day weighing the cause and effect, cost and benefit, risk and impact of our actions on ourselves and upon others. When taken to a larger scale, as the manager of a team, the CEO of a corporation, or the leader of a nation, the decisions exponentially increase in impact and importance.
Game Theory, the analysis of the concepts used in social reasoning when dealing with situations of conflict (Rubinstein, 1991), is one of many methods used to provide rational strategies towards the making of decisions. Game theory provides logical and mathematical models towards decision-making which are applied to real-life situations such as
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The objective is to determine the most profitable (revenue minus cost) product based on its attributes relative to the market but also accounting for what the competition is selling comparably. Because of the complexity there are a great deal of parameters to take into consideration as part of the “game form” including the number of manufacturers in the market, number of products offered by the manufacturer, number of products on the market, number of segments in the market, engineering costs of a given product by a manufacturer, market demand for a given product, market share of the manufacturer (brand influence), and the probability of another manufacturer producing a similar product. One assumption factored into the game is that strategically a competitor would consider not entering a market (production of a given product) saturated with similar products. From the above mentioned examples, we can validate that Game-Theoretic modeling plays an invaluable role as a metaphorical approach to strategic management (Saloner, 1991). Game Theory provides measurable simulations of what could happen to enable rationalization of the best course of action without incurring the heavy costs of a true trial and error method. With that said, as noted in our introduction, while game theory
The decisions or strategies one company chooses will likely motivate other competitors to respond. Using the game theory allows a company to assess and understand more about itself and its competitors so that it can adjust and shape the competition to maximize its win probability (Johnson, 2014). Some examples of how A&D companies apply the game theory in their decision making are:
The aim of the Competition and Strategy course is to provide students with deep knowledge on strategic decision-making in a business environment and the strategic principles behind it. Within this course my team members Kristijan, Yaniv, George and me (Team KUGY) had the opportunity to apply our academic and theoretical understanding and knowledge in an online business simulation game, wherein we created our own car business and competed on the European car market fictionally. This paper aims to elucidate the advance of our strategic decision-making, observes the reasoning behind it and examines the following implementation of our approach.
Decision-making is an important process. It can be a task, which needs a simple decision to be made or a difficult situation involving several issues. In difficult situations, there may be uncertainty and complexities, wherein there may be interrelated factors that could lead to high-risk consequences, the impact of the decision made could be very important. Every situation will have its own set of uncertainties and consequences. Interpersonal issues too come in the way of making an effective decision, as it is difficult to predict how people will react to different situations.
Game theory is one to more complexed topics but reveals a clear understanding from different scholars. Don Ross explained that game theory is the study that interacts with the different choices of economics agents which bring forth many different outcomes with the point to the preferences of those agents, where the outcomes in question might have been intended by none of the agents (Ross, 2016). The properties that game theory considers in economic situations include two or more 'economic actors ' - that is, two or more firms, individuals, political parties, etc. Each individual economic actor has a set of decisions they can make - what price to charge, how much to save, whether to move right or left, etc. Each individual economic actor has a 'goal ' or payoff, such as profit maximization, maximize happiness, minimize loss, etc.
Games can be very hard. States can be only observes to a certain extend. Multiple agents choose Actions, stochastic pays off and state transition depends on state and other
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We illustrate a method to obtain the solution to Nash arbitration using only methods involving college algebra. A necessary component of the Nash arbitration is the status quo point which is usually the security levels found from the Prudential Strategies. We use linear programming to find these security levels using the SimplexLP of the Solver. We show how golden section search, used as an iterative numerical method with Excel, is used to find the solution value for the x coordinate of the Nash arbitration scheme. Then we show how we find the y coordinate using the equation developed from the Pareto optimal line. Having
The field of game theory came into being with Émile Borel 's researches in his 1938 book ‘Applications aux Jeux des Hazard’, and was followed by the 1944 book ‘Theory of Games and Economic Behaviour’ by John von Neumann and Oskar Morgenstern. This theory was developed extensively in the 1950s by many scholars. Game theory was later explicitly applied to biology in the 1970s, although similar developments go back at least as far as the 1930s.
Making prodigious decisions is an everyday challenge. A great deal of the time, those tough decisions is dependent on who it affects. Thus, when the impact of that decision touches thousands of individuals, the pressure is multiplied beyond measure. Moreover, there are several key factors that a great leader should keep in mind when the decision making time is ready. Firstly, will this pronounced decision compromise the safety of anyone? Secondly, how can the decision made by the leader be communicated throughout the workgroup?
The strategic board game, Diplomacy, focuses on wars, but more importantly the act of negotiating. The players are responsible for forming strategies by both developing and breaking alliances with their competitors. The game is set in Europe during World War I with most teams beginning with similar resources. Each player-team competes as an either Austria-Hungary, Turkey, Italy, England, France, Russia, or Germany. With at least three home-center game pieces on the board, there are strategic movements in order to control one of the eighteen supply centers. This involves phases of negotiation prior to movement of the game piece. There is no factor of luck. The main variable in the game is each team’s ability to convince the others to do what they want. The core game strategy is negotiation. This board game at times mirrors actual history and educates the players as to the method by which a world war can happen.
In other words, which strategies deliver the best performance hinges on the strength and interplay of the strategies employed by rival companies—not on some mystery "silver bullet" decision combination that players are challenged to discover.
Making tough decisions is not easy. Decision-making is a process. There are many things great leaders do help all leaders through the process. In addition, all decisions face emotions, change, anxiety, stress, and uncertainty (Kase, 2010).
For the purpose of this paper, I will present a simplified version of this experiment modified for two participants to show the logic behind game theory, which will determine the supposed outcome of the experiment. The basic model serves the general purpose of demonstrating how the most beneficial scenario is to always look out for one’s own interests. In this case, the players have two choices; donate their money, which would take away from their own pleasure, or keep it. Suppose both are male participants. Each is assigned 1 monetary unit (MU) for the one-turn game;
Game theory cannot always predict reliable outcomes for real-life situations as it is more an
This is an argument between the conceptuality and the practicality of Nash equilibrium in Economics. To understand it we need to first look into what economics is about, which is the study of social and human interaction and rational decision making quantitatively. Nash equilibrium can act as a tool to provide an insight into such interaction. In the first part of this essay, I am going to evaluate why the statement ‘economics without the concept of Nash equilibrium is conceptually flawed’ is true, by looking into the importance of rationality in economics and the mechanism of the Nash equilibrium. In the second part, I am going to assess why the argument for ‘Economics with the concept of Nash equilibrium is practically useless’ is true