Game Theory Welcome to ECON 101 (XD) I am not sure if everyone is as excited about this game as I am but... It'll be fun (I hope). But I presume not everyone understand what game theory is all about... so.. I thought it'll be better if I did some sort of introduction. BTW I am not an ECON major student, so correct me if I'm wrong. ^^ ----------------------------------------------------------------- Game Theory ------------ * People often have to make strategic choices: - Firms decide whether or not to enter an industry - How much advertising to undertake - What price to charge * Game theory helps ppl making decisions. - Basically it assumes ppl take into account how their opponents will respond to their action. - And they act accordingly. Some basic Assumptions: - Players are rational - they always seek to maximise their own profits - Players have full information - they know what the payoff is like. - Games can be played simultaneously / sequentially Let's start with 2 ppl: (actually I only know how to play with 2 ppl) THE PAYOFF MATRIX A\B │ Advertise Don't Advertise ────────┼────────────── Advertise │ 10,5 15,0 Don't Advertise │ 6,8 10,2 The "column" represents A's strategies & the "row" represents B's strategies. For example: A\B │ Advertise Don't Advertise ────────┼────────────── Advertise │ 10,5 15,0 Don't Advertise │ 6,8 10,2 This means that when A chooses to advertise & B chooses to NOT advertise, A gets a return of 15 and B gets no return (0). So how do they choose their strategy?? Remember they will always take into consideration of their opponenent's action. For person A: -------------- A\B │ Advertise ────────┼────── Advertise │ 10,5 Don't Advertise │ 6,8 If B advertises, A will get 10 return if A advertise & 6 return if A not Adv. What would you choose? 10 > 6. Therefore A would choose to Advertise when B chooses to advertise A\B │ Advertise Don't Advertise ────────┼────────────── Advertise │ 10,5 15,0 Don't Advertise │ 6,8 10,2 15 > 10 therefore A will choose to Advertise if B doesn't advertise. A will "advertise. Using the same method for B, we will also conclude that... ====> To B, "Advertise" is the dominant Strategy. Therefore, no matter what each other do, they will both advertise. ====> Return for A & B will be 10 & 5. ----------------------------------------------------------------------- Not every game ends up with dominant strategy... For example: A famous game is called "The Battle of the Sexes" A\B │ Boxing Opera ────────┼────────────── Boxing │ 2,1 0,0 Opera │ 0,0 1,2 (haha~ This can be linked to relationship XD) A & B are a couple. They enjoy doing things together. They are deciding whether to watch "boxing" or "opera". If they went to the events alone (i.e. A to Boxing & B to Opera), they enjoy no pleasure, therefore return to both of them is 0,0. But A enjoys boxing more than opera and B vice versa. There are two Nash Equilibrium here. (can't be bother explaining what NE is) I.e. Boxing Boxing OR Opera Opera. Note that if this is played in Sequential movement (ie. one of them move first) There will be a clear strategy lol so boys & girls watch out!~ Always choose first XD (j/kj/k) ----------------------------------------------------------------------- So that's about it for now. Basic introduction (very basic indeed!) for a game theory. I'm not really sure how we can start playing this game as Derrick proposed. @@ I mean...it's a really useful tool (won so many prizes) but... I dunno how to start using it.. Please share thoughts~ Ppl like douglash? Econ major? or pace1024? & Derrick? any ideas? ------------------------------------------------------------------------ Derrick: I am part-time student working full-time as a clerk.. >.< My workload is light so I am online all the time XD Spartan: um..I'm not "nutty professor" la >.< I just have random thoughts from time to time... I wish I can use my time more wisely XD escudocat: Do you know a bit about game theory now? Wanna participate? Karatefish: yea I tend to trust my feelings too... But if u have a look at o2 board & various postings.. ppl nowadays are very... "conditioned" Game Theory! ˙ ＞ │ ˙ ▽ ▌│ ▲﹀ ┬┬│ 〒﹥ ╰┤│ │ -- ● ┌─────┐ ╭▲ˊ To Love and Win is the Best Thing... │Thackeray │ || To Love and Lose, the next Best... └─────┘ (This is my first ever ASCII product ^^) --

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