GAME THEORY study of how people interact and make decisions (Applications,…
GAME THEORY study of how people interact and make decisions
invents concept of Nash equilibrium
“Theory of Games and Economic Behavior” by
Neumann and Morgenstern
wrote a key paper in 1928
What are their incentives?
What do they know?
What are their options?
How do they think?
: Who is interacting?
Simultaneous and sequential
Perfect information and imperfect information
Zero sum and non-zero sum
Finite & Infinite Strategies
Cooperative or non-cooperative
Penalty shoot-outs in soccer matches
Serving and receiving in Tennis
Individual Plays in a game of American Football
Altheletes choosing to dope or not to dope
Split or Steal in Golden Balls
A game of Rock, Paper, Scissor
Closed bid auctions
The Prisoner's Dilemma
most instances involve repetitive solution
the payoff is fixed and determined in advanced
there is a conflict of interest between them
each player knows all possible courses of action open to the opponent as well as anticipated payoffs
the conflicting parties decide simultaneously
there are finite number of competitors
no player has an incentive to deviate from his chosen strategy after considering an opponent's choice.
A game may have multiple Nash Equilibria or none at all.
named after its inventor,
, an American mathematician
each player's strategy is optimal when considering the decisions of other players.
To quickly test if the Nash equilibrium exists, reveal each player's strategy to the other players. If no one changes his strategy, then the Nash Equilibrium is proven.