Game Theory :
Game theory is a branch of economics that studies strategic decision making. It is based on the idea that individuals and organizations make decisions based on the expected outcomes of their actions. In game theory, a game is a situation in which multiple players interact and make decisions that affect each other’s outcomes.
One example of game theory is the prisoner’s dilemma. In this scenario, two prisoners are each offered a reduced sentence if they betray their accomplice. However, if both prisoners betray each other, they both receive a longer sentence. The prisoners must decide whether to betray or remain silent, and the outcome depends on the actions of both prisoners. In this game, the dominant strategy for each prisoner is to betray, resulting in both prisoners receiving a longer sentence.
Another example of game theory is the ultimatum game. In this scenario, one player is given a sum of money and must offer a portion of it to the second player. The second player can either accept the offer or reject it. If the offer is accepted, both players receive the agreed upon amount. If the offer is rejected, neither player receives anything. In this game, the dominant strategy for the first player is to offer the smallest possible amount, while the second player’s dominant strategy is to reject any offer that is less than half of the total amount.
Game theory can be used to analyze a wide range of situations, from bargaining and negotiation to voting and competition. It can help individuals and organizations make strategic decisions by considering the potential actions and outcomes of other players. It can also be used to predict the behavior of other players and understand their motivations.
Overall, game theory is a useful tool for understanding strategic decision making and the interactions between individuals and organizations. By analyzing the potential outcomes of different actions, individuals and organizations can make more informed and strategic decisions.