Ch 14 - Game Theory

Ch 14 - Game Theory - CHAPTER 14 GAME THEORY Game Theory: -...

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CHAPTER 14 GAME THEORY Game Theory: - attempts to study decision-making in situations where there is a mixture of conflict & cooperation - general analysis of strategic interaction: - each player attempts to anticipate actions of rivals - all decision agents are presumed rational - it is useful for managers who participate in oligopolistic decision making. - eg K-mart & Walmart - profit maximizing decisions are considered as rational decisions when considering game theory = consider your game theory decisions - Game: is a competitive situation where two or more persons (organizations, firms…) pursue their own interests and no person (organization, firm…) can dictate the outcome because you don’t have monopoly power - job = maximize our own profits NOT minimize other companies profits If I believe that my competitors are rational and act to maximize their own profits, how should I take their behavior into account when making my own profit-maximizing decisions? Definitions: - Player - a single person or an organization (a decision making unit) with a certain amount of resources - Rules of the game - describe how resources can be employed - Strategy - a complete specification of what a player will do under each contingency in the playing of the game - Payoff matrix - set of rewards to players depending upon the outcome of the game TYPES OF GAMES: Simultaneous: - Rivals must make decisions with no knowledge of each other’s decision - Similar to Pay-Off Matrix - There are at least 2 decisions to analyze = very simple matrix Barkley’s Best Strategy = 4 & 3 (Spend @ Current) Allied’s Best Strategy = 4 & 3 (Increased Spending) Dominant Strategy: - Strategy that is “best” for one player, regardless of the strategy adopted by the other
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This note was uploaded on 04/18/2008 for the course MGCR 293 taught by Professor Salmasi during the Fall '08 term at McGill.

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Ch 14 - Game Theory - CHAPTER 14 GAME THEORY Game Theory: -...

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