Game Theory2 - Norton Media Library Game Theory W. Bruce...

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Game Theory Norton Media Library W. Bruce Allen Neil A. Doherty Keith Weigelt Edwin Mansfield
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Game Theory Representation of a model of strategic behavior in the form of a game. Basic Elements of a Game The players Their strategies The payoffs Games: Simultaneous or Sequential
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Dominant Strategy One that yields a higher payoff no matter what the other players in a game choose Dominated Strategy Any other strategy available to a player who has a dominant strategy
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Rival R&D Programs: An Example of a Two-Person Game Barkley and Allied plan rival R&D programs. Allied ’s profits are shown in the lower triangle of each box. Barkley’s in the upper triangle. Each box is a strategy pair of the two firms, and each firm has just two strategies.
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Strategies Pursued in the Allied- According to Figure 12.1, Barkley makes larger profits following Strategy 1, regardless of Allied ’s strategy. Likewise, Allied always makes larger profits following Strategy B. Thus the two firms are said to have dominant strategies : the strategy that they choose does not depend on the strategy of the other.
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Dominant Strategies and the Solution of the Game Since both firms follow their dominant strategy, the solution of the game in Figure 12.1 is simple. There is only one solution. Allied follows strategy B while Barkley follows strategy 1. Allied makes 4 million $ while Barkley makes 3 million $.
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Nash Equilibrium This illustrates a Nash Equilibrium . Nash Equilibrium
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This note was uploaded on 04/07/2008 for the course ECON 2010 taught by Professor Devkota during the Spring '08 term at Rensselaer Polytechnic Institute.

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Game Theory2 - Norton Media Library Game Theory W. Bruce...

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