Game Theory

short

What a "Game" means in Game Theory.

Rivalry is direct. In "Zero-Sum" games you win just what the other guy loses. Economic market games are often non-zero sum. Noncooperative often. Oligopolistic.

Who needs to study Game Theory?

We will do two-person games in this course.

Pa yoff M a trix R a nd D Pro g ra m s

Ba rkle y's Pro fit $4 m illion

Ba rkley's p rofit $3 m illion

Ba rkley's p rofit $3 m illion

Ba rkley's p rofit $2 m illion

Allied 's p rofit $3 m illio n

Allied 's p rofit $2 m illio n

Allied 's p rofit$4 m illio n

Allied ' s p rofit $3 m illio n

Stra te g y 1 Stra te g y 2

Ba rkle y

Stra te g y A

Stra te g y B

Allie d

Nash Equilibrium:

A set of strategies such that each player believes accurately that he is doing the best he can given the strategy of the other player.

Nash as a young man

Nash as a Nobel Prize Winner

The book and the Oscar-winning movie.

BarkleyA B

Allied I

II

Ba rkley's Profit $4 m illion

Ba rkley's p rofit $3 m illion

Ba rkley's p rofit $3 m illion

Ba rkley's p rofit $4 m illion

Allied 's p rofit $3 m illio n

Allied 's p rofit $2 m illio n

Allied 's p rofit$4 m illio n

Allied ' s p rofit $3 m illio n

Stra te g y 1 Stra te g y 2

Ba rkle y

Stra te g y A

Stra te g y B

Allie d

Pa yo ff M a trix: No Dom ina nt Stra teg y fo r Ba rkle y

Applications of Game Theory outside of economics:

Prisoner's Dilemma MAD our historical Cold War policy on nuclear attack missiles and our defensive system.

Does Cheating Pay?

Before Most-favored Customer Clause

After Most-Favored Customer Clause

Walmart Case: Preemptive strategies.