Examples on game theory

Should I lower my prices? Hence the last part of the definition…. If you fumble the ball in football at every play, this gives your opponent the advantage and their probability of winning the game goes up.

Conversely, if they fumble the ball in every play, your probability of winning goes up. So it would be really helpful if your opponent would just decide to fumble the ball every play!

This leads me to my last point on game theory before we get into some examples…. For game theory analysis to be meaningful, you have to make some assumptions on what you want or value and what your competition wants or values.

For example, when starting a football game you have to assume that both you and your competitor want to win the game. Same goes for business. In business you have to assume that both you and your competition want to win customers — often the same customers.

This assumption, that both you and your competition want to win the game or the customer, is fundamental to game theory analysis. Also note that I will start out by discussing restaurants a hot dog stand but later on at the end of the post I will show how this relates very well to innovation.

Now because you are a shrewd business person, you know that where on Main Street you decide to locate your hot dog stand is a big decision that will have a major impact on your success. You also know that where the other person decides to locate their hot dog stand will have a big impact on your business as well because they will be going after the exact same customers as you.

So you decide to do some serious analysis of Main Street to determine where the best place would be to locate your new stand. Now that we know what the area looks like, we can start thinking through some what-if scenarios. Now the question is, where would you choose to locate your hot dog stand?

Not really. Below is a table summarizing the distances each employee at each office has to walk to get to your hot dog stand:. One thing to note is that this extra travel time comes at an opportunity cost to them. This means that your profit would be as follows assuming one employee per office building :.

Such is the plight of consumers under a Monopoly. One day your friend the Mayor calls with bad news: the law that stated you were the only hot dog stand allowed has been repealed. This equilibrium holds in the non-cooperative games. As per the film, the mathematician got the idea of the theory by observing all his friends try to hit on the most beautiful girl. Seeing this, he decided to hit on the second or the third most beautiful woman to improve his chances.

The game theory has applications in numerous fields, be it computer science, biology, philosophy, and more. Economists and strategists always refer to this theory to come up with a better product, policy, and a better social or economic environment.

Even in our lives, we are always in a game where our actions and decisions depend on the activities, decisions, and feelings of others. He is passionate about keeping and making things simple and easy. Running this blog since and trying to explain "Financial Management Concepts in Layman's Terms". The theory is applicable in different fields, like in business, psychology, biology, economics, political science, computers, etc.

The practical implication of the theory lies in its use to support in explaining events and situations that occurred in the past and to determine different actions players may take in the future, etc.

From the business point of view, game theory can be utilized by business managers to predict the strategic planning or thought process of their competitors and collaborators. It is considered a very powerful medium for forecasting or predicting the output of interactions between different participants or competitors in which reaction of one depends on the action of others. There are two main ways by which the game theory can be used, i.

An auction is considered as a sale activity in which different bidders bid for purchasing any good or service, and the same is sold to the bidder having the highest bid. Game theory is being used in bid auctions, especially for analysis of the first price sealed auction bidding. Nevertheless, game theory offers some useful models that can be applied to real world problems and decisions.

Venema game theory through examples, erich prisner geometry from africa: The pd in real life. Probably, chess is the best example of game theory because all the possible moves and their effects are known.

Examples of zero sum games are chess and gambling. The best example of game theory in politics is the cuban missile crisis. Exploratory examples for real analysis, joanne e. In the 's, isolationism dominated the united states. In these games, the gain of one player results in the loss of the other player. The losses of dummy player are overridden by the net earnings of players.

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