Question

Situations in life where game theory has been implicity or explcitly.

What does game theory, implicity & explicity mean?

Please give examples.

Answer 1

Game theory studies the general principles that explain how people and organisations act in strategic situations in multiple agent framework.

Game theory studies strategy mainly through the analysis of different games. A game in game theory is a fully explicit structure which characterises players, their set of actions, payoffs and possible outcomes under the given rules of playing.

Real life examples are as follows—

a) Random drug testing ( at Olympics)

The group is made up of competitive athletes and the international Olympic Committee(IOC). The interaction is both between the athletes who make decisions on training regimens as well as whether or not to use drugs— and with the IOC, which needs to preserve the reputation of the sport Rational strategic play requires the athletes to make decisions based on their chances of winning and if they dope, their chances of getting caught. Similarly, it requires the IOC to determine drug testing procedures and punishments on the basis of testing procedures and punishments on the basis of testing costs and the value of a clean whistle reputation.

B) R and D efforts by pharmaceutical companies

Some estimates suggest that research and development, R and D  expenditures constitutes as 15% of annual sales of UK pharmaceutical companies and that on an average the development cost of a new drug is about dollars $600 million. Companies are therefore very concerned about ploughing back their investment in RND and mitigation of risk in their investment. If you take the set of big drug companies, the strategic interaction arises because the first developer of a drug makes the most profits due to patents.