DAY 2 PP Game theory.ppt

DAY 2 PP Game theory.ppt - INTRODUCTION TO GAME Chapter 15...

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INTRODUCTION TO GAME THEORY Chapter 15: Oligopoly (pages 396-404) Chapter 15: Oligopoly (pages 396-404)
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Prisoner’s Dilemma Police arrest you and a partner with enough evidence to send you both to jail for 1 year They know you committed a worse crime that carries 20 years but don’t have enough evidence If one of you confesses you are set free while the other serves 20 years If you both confess each gets 3 years What do you do?!?
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Prisoner’s Dilemma Prisoner 2 Confess Not Confess Prisoner 1 Confess -3, -3 0, -20 Not Confess -20, 0 -1, -1
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Game Theory Explains how interdependent firms make decisions PAYOFF MATRIX used to assess choices
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Payoff Matrix Advertis e Don’t Advertis e Advertis e 80, 80 120, 45 Don’t Advertis e 45, 120 100, 100 Dominant Strategy : The best strategy for a player regardless of the strategy followed by the other player. Dominant Strategy for Coke
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