In: Economics
rules of the game in economy
The game should be systematic and every game has certain rules. The action of the individual agents is the subject matter of game theory. The decision theory helps one person to arrive at a particular decision. The decision theory may help to get the right decision under uncertainty. The general model of action seems to be the heart of the game theory. For instance, it could apply to any type of player and not just an individual.
So long as the state or the working class has a consistent set of objectives/preferences, then we could assume that it (or they) also act instrumentally so as to achieve these ends. Likewise, it does not matter what ends a person pressures, they can be selfish, weird, altruistic or whatever, so along as they consistently motivate then people can still act so as to satisfy them best.
Game theory takes help of the decision theory. But it goes beyond classical explanation. In decision theory, there are no players and actions. But in game theory, there are different players and actions, payoffs and information. In simple formula, it is called as PAPI. It is referred as the rule of the game and they try to maximize their payoffs. In the game theory, the players formulate the plans which are known as strategies. Such alternative strategies, actions are depending on the information received by the individual player. Each player’s action is different from each other. It is depending on the information received at different levels and time. The strategies and actions played by each player achieve different equilibriums at different points. The experts of the game theory explain the strategies and game play and payoff of different players. Such common strategies are useful to formulate the policies at micro and macro level.
In game theory, the players of any game are the individuals and firms. The goal of the individual player is to maximize his utility. For maximizing the utility, the players choose alternative actions. The firm chooses particular strategy to get more profit out of various alternative strategies.
Games are the way of modeling strategic interactions that is situations in which the consequences of individual’s actions depend on the actions taken by others and this mutual interdependence is recognized by those involved. Game theory is the study of games, also called strategic situations. These are decision problems with multiple decision makers, whose decisions impact one another.