Question

pdf about game theory

Answer 1

Game theory:

Game theory is the process of interaction between two or more number of players or parties in a strategic situation under predetermined set of rules, procedures and outcomes. Like any other concepts of economics there are two assumptions called assumptions of rationality and assumptions of maximization . In short it is assumed as the players involved are rational in nature and make every effort to maximize profit.

Types of game theory:

There are 5 types of game theory.

1) Cooperative and non cooperative games - In this type the players are convinced to accept a particular strategy through solid agreements and negotiations between them. Example : Advertisement expense of a pan masala company cannot be reduced if one company decided to do it. Other companies may not follow them . But they will be influenced to do so if government restricts the advesements of pan masala. But still the companies will move forward with their own strategy to increase their profit.

2)Normal forms and extensive form games - Description of games in matrix form is called normal form games.Payoffs and strategies are represented in tabular form.The matrix depicts the strategies adopated by different players and their possible results.

Extensive form games are described using decision tree. It represents events that occures accidently by chance.

3)Simultaneous move games and sequential move games - In simultaneous move games two players act and perform simultaneously without being aware of the strategy and next moves among each other.

In sequential move games both the players move sequentially but one player will be aware of the strategies adopted by other one.But they lacl deep knowledge on strategies of the competitor.

4)Constant sum,zero sum and non - zero sum - In Constant sum games the sum of outcomes of all the players is equal to a constant. In zero sum game the sum of outcomes of all the players is equal to zero and in Non - zero sum the startegies of different players has no impact on the available resources.

5)Symmetric and assymmetric games - In symmetric games the strategies of all the players are same. It usually exists in short- term games only as there are number of options for the players in long term options. Decisions depends on the strategies not the players.

In assymetric games the startegies adopted by each players will be different. The strategy which is beneficial to one player will not be beneficial to another player. Decision making in assymetric games depends upon types of strategies and decisions of players.

Example:

prisioner's dilemma is the most known example of game theory.

Suppose two people are arrested for a crime but there is no solid evidence to convict them. In such cases they will be shifted to two seperate cells or rooms along with some officials . They will be questioned and given a chance for confession. Communication between the convicts are not allowed. The punishments will be decided based on their willingness to confess individually.