What is game theory?
The theory of games is a branch of the economy that studies the decisions in which for an individual to succeed he has to take into account the decisions made by the rest of the actors involved in the situation. Game theory as a mathematical study has not been used exclusively in economics, but in management, strategy, psychology, or even biology.
In-Game Theory we don’t have to ask ourselves what we’re going to do; we have to ask ourselves what we’re going to do considering what we think others are going to do; they’re going to act thinking as they think our performances are going to be. Game theory has been used in many businesses, economic, political, or even winning decisions by playing poker. Game theory is our concept this week.
To represent graphically in Game Theory, matrices (also known as a standard form) and decision trees are often used as tools to understand better the reasoning that leads to one point or another. Also, games can be solved using mathematics, although they are usually quite sophisticated enough to go into depth.
The game theory defines dispute scenarios in which the advantage is affected by the activities and also counter-reactions of intelligent challengers. The sum-zero Video game of two-people plays an essential duty in the advancement of Game Theory.
The theory of video games is definitely a model for winning firms or to be effective in an affordable setting: For instance, there are several essential variables to think about when an offer is made crucial, among which are: to Develop as well as keep a placement of preference as a prospective buyer, to establish a connection of choice for the consumers, of what is offered in and of itself, as well as of the rate.
To develop game theory ideas, consider the list below game, in which player I have two selections to pick from, and player II has three choices for every gamer I selection.
Although there have been previous works the game theory begins with a study by Antoine Augustin Cournot on a duopoly in which a deceptive version of Nash’s equilibrium is reached as the appropriate price and production level is gradually achieved. Later it could be said that the founder of the game theory formally speaking was the mathematician John von Neuman, the same from the Manhattan Project.
Since then some economists have been awarded the Nobel Prize in economics for their work on the subject. Nash stands out, known for the film “a wonderful mind” and because it is in Nash’s balance that many conclusions have been drawn on game theory applied to real-life are based.
Nash’s equilibrium is achieved in a situation where none of the players (or agents) in a game in which there are two or more players, everyone knows the balance of others, want to unilaterally change their decision because changing it would worsen their condition. When all players have made a decision and cannot change it without worsening their well-being, it is considered that a Nash equilibrium has been achieved.
Nash’s equilibrium may not be efficient (i.e., there may be a situation where all players increase their well-being without harming others). However, Nash’s balance is sometimes the only alternative given the rules of the game even though there is a Pareto optimum.
Nash’s equilibrium has been used to regulate competitive situations between companies and design public procurement auctions. A law that takes into account the Nash equilibrium can avoid oligopolies, and therefore in the anti-monopoly legislation is often find ways to prevent that is agreed on prices between the parties involved.