Game theory
Economists call it game theory; psychologists call it the theory of social situations.Game theory is the study of decision problems in competitive situations. Game theory is the procedure for analyzing and deriving rules for making decisions when two or more people or organizations are competing for some objective. It was developed by a mathematician John Von Neumann over 50 years ago.It is a distinct and interdisciplinary approach to the study of human behaviour and it is a branch of mathematical analysis developed to study decision making in conflict situations. It provides a mathematical process for selecting the optimum strategy in the face of an opponent who has a strategy of his own. It can improve one's ability to run a business or to evaluate changes in a policy. To choose rationally is to maximise one's own rewards. Game theory is complex and the outcome not only depends on one's own strategies and 'market conditions' but also the strategies of other decision makers. John C. Harsanyi, John Nash, and Reinhard Selten were awarded the Noble Peace Prize in 1994 for their excellent work and progress in game theory and used games like chess and poker as the foundation for understanding complex econom
(Sociology, biology and public policy). Prisoners' dilemma is the most famous game theory problem and is used over a wide spectrum of subjects to model real life situations. If they had acted irrationally and kept quiet, they could have got off with 2 years each. Either way it is better if I confess. On the other hand if my friend denies the crime, then I get 1 year if I confess and 2 years if I deny. Game theory found all kinds of immediate applications in the 1950's to problems of the Cold War, everything from airplane dog-fights to massive retaliation. For example, American foreign policy since WWII has been based on the strategic assumption that no country will attack the USA in fear of retaliation which would be greater than the original strike. In the context of the economy, this means that any gain in a share of the market must be offset exactly by the loss of other firms. If neither man confesses, then both will serve 2 years on a charge of carrying a concealed weapon. However if one burglar confesses and accuses the other, and the accused burglar denies the crime then the one who has collaborated with the police will get away with one year whereas the burglar who lied will receive the maximum sentence of ten years. We are now going to present the situation to you. It is presumed both prisoners will reason in the same way so that they both confess and receive 3 year sentences. However, the police do not have sufficient proof in order to have them convicted. It is easiest to model games with few players - and so game theory is used in Microeconomics to explain the behaviour in oligopolies.
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Acceptance Essays
