AN INTRODUCTION TO GAME THEORY - UH
AN INTRODUCTION TO GAME THEORY
Oxbridge Economics; Mo Tanweer Mohammed.Tanweer@
Game Theory
What is Game Theory?
Game theory is a branch of applied mathematics that is often used in the context of economics.
It studies strategic interactions between agents. In strategic games, agents choose strategies which will maximize their return, given the strategies the other agents choose.
The essential feature is that it provides a formal modelling approach to social situations in which decision makers interact with other agents.
Behavioural economics introduces psychology into the mix too
Schelling (2005) Nobel Prize
Game Theoretic ideas
What is a "game"?
Zero-sum vs Non-zero sum
Skills vs Chance
Sequential vs Simultaneous
Rational vs Irrational Shopping Mall story
First-mover advantage vs Second-mover advantage
Strategic vs Independent Pyrrhic victory
Dominant vs Dominated strategies
Pure vs Mixed strategies
Cheating
Brinkmanship
Repeated vs One-shot games
Tipping Points
Focal Points
Flat Tire story
Backward Induction
Rollback Analysis
Nash Equilibirum
Punishment strategies
Backward Induction (Rollback analysis)
Extensive form
Game Tree
Branches
Nodes
N A
d B
k
0,2 2,1
Start at the final node
and work out the
optimal response there...
S 1,0
Use Backward Induction
Backward-induction applications E.g. Apple; your career
What is the Nash Equilibrium?
Backward Induction
Use Backward Induction
What is the Nash equilibrium?
0,1
N
2,3 N
4,5 N
A
A
A
SBs
s SB
1,0 SBs
n 3,6
n 3,2
n 2,2
................
................
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