Lec15_F03_out

# Lec15_F03_out - Class#15 Game Theory Introduction Take a...

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Class #15: Game Theory Introduction Take a look at the following film clip from Princess Bride http://www.gametheory.net/html/pop_images/Princess.mpg I. Game Theory—as a model A. Game theory is about perfectly rational players interested only in winning. The game is open to analysis with game theory, when you 1. credit your opponent with both rationality and the desire to win, and 2. play so as to encourage the best outcome for yourself B. While game theory cannot often determine the best possible strategy, it can determine whether there one exists. C. Definition 1. Interdependence of choice a. outcome requires both choices b. outcome is the intersection of the two choices 2. Jointly produced outcomes a. player chooses either a row or a column b. player does not choose an single cell II. Concept of a Game A. Players (rational) 1. Assess outcomes 2. Calculate paths to outcomes 3. Choose actions that lead to most preferred outcomes B. Alternatives C. Outcomes D. Values (ordinal, cardinal) E. Communication – can the players talk to one another before moving F. Strategies – 1. a decision rule that specifies what they will do in any contingency; 2. a predetermined program of play that indicates what actions to taken in response to every possible strategy the other player might try. III. Types of Games A. Two person vs. N person B. Zero Sum vs Non Zero Sum 1. Zero Sum – interests in strict conflict – in order for one player to win, the other player must lose 2. Non Zero Sum – zones of commonality of interests as well as conflict; there can be combinations of mutually gainful or harmful strategies C. Simultaneous vs Sequential 1. Sequential – there is a linear chain of thinking; If I do this, my rival will do that, and, in turn I can respond in the following way 2. Simultaneous – there is a logical circle of reasoning; I think that my rival thinks that I think that D. Cooperative versus Non Cooperative 1. Cooperative – focuses on a group or coalition; how to maximize return for all 2. Non Cooperative – individual participant is concerned with doing as well as possible subject to clearly defined rules and possibilities; cooperation only occurs when it is in

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the best interest of the individual such that each fears retaliation if cooperation breaks down. E. Knowledge – complete information means that all players know the pay-offs and alternatives for both players IV. Game Forms A. Extensive – games as trees 1. represent sequential games 2. show the order in which actions take place B. Normal – games in matrix form Strategy--Decision Rule – a complete contingent plan for playing the game i. Pure C. Mixed V. Equilibrium Outcome -- an outcome is an equilibrium if no player can unilaterally improve his or her own payoff. VI.
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## This note was uploaded on 04/21/2008 for the course PLS 200 taught by Professor Idk during the Fall '08 term at Michigan State University.

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Lec15_F03_out - Class#15 Game Theory Introduction Take a...

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