1.What is the game theory? Why is it important, explain Prisoner's Dilemma and give three examples?
2. Explain Hotelling Law, describing the beach kiosk scenario, give three examples and a conclusion
Q.1. What is the game theory? Why it is important ,explain Prisoner's Dilemma and give three examples.
GAME THEORY :- Game theory is a interactive decision making theory. It is the study of strategies choose by rational individuals. It is like a competition among players who produce optimal decision making regarding pricing and product release.It is assumed that the players in the game are rational and try to achieve their payoffs in the game.
As it studies the rational choice of strategies, this conception is common between the rational agents and neoclassical economists.It is the basis of construction of alternative strategies because it results to get the clear scenario of current situation of particular industry or firm and maintains the alternative views on the information available to them. It suggests the result of different strategies work in industry or in market places.
There are many scenarios included in the game theory like prisoner's dilemma, dictator game and many others.
It is one of the well known example of game theory which basically shows the movements of the different participants or players for a common motive. Generally there are two players who try maximize their profits in comparison to their competitors or other players.
It is shown by a 2×2 matrix game.There are two players and two decision possibilities. 2×2 matrix is known as Prisoner's dilemma. It is an interaction between the social things and individuals.
Following are the key points of this 2 ×2 matrix box game:-
1.) If both players confess,they will each receive a 5 year prison sentence.
2.) If one of them confess and other doesn't, first one will get 3 years prison and second will get 9 years prison .
3.) If second one confesses, and first one doesn't. First will get 10 years prison ,second one will get 2 years prison.
4.) If neither confesses, each will get 2 years in prison.
1.) Two criminal commit a crime of ATM robbery, and the investigation team or police have not enough evidences against them .There game theory works.Neither prisoners has the means to communicate with each other. Both the criminals put in different cells and same sentence offers to them that if you confess , you will get only 5 years prison and you go to free as main witness.
2.) If prisoner is going to be provoked, he can respond with retaliation ,if unprovoked, he may cooperates.
The nash equilibrium suggests that in a prisoner's dilemma is that nothing is best for them individually but worse collectively. Tit for tat is the optimal strategy for driving the prisoner's dilemma.
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