Game Theory
Student’s Name
Class
Professor’s Name
Institution
Date
Introduction
Game theory is an important tool that can be used to determine how the decisions made by others come into play and also subsequently influence other’s decisions. It borrows from parlor games such as chess and poker to come up with the concepts that influence it. The concept goes a long way in explaining where the theory gets its name. Its main application areas include places such as economics, coming up with strategic military policies and in the field of politics. (See Ref 1 ”Game theory is a toolkit for analyzing situations…” 30-4-2014))
Having a Dominant Strategy
The first feature is having a strategy. The strategy includes having a strategy that if
implemented will put the firm using it in pole position to beat its rivals. In most cases,
rival firms do not know in what way their rivals will act in the market. (See Ref 2 “If
you have a dominant strategy and no opportunity to agree an alternative course of action with
your opponent, play that strategy.”30-4-2014)
If two rival firms both have a strategy, then neither will out rightly know how to go about implementing the decisions. Assuming there are two companies A and B, with both having advertising as a key strategy influencing their positions in the market. If both companies A and B choose not to advertise then they will both get high returns. If A chooses to advertise and B decides otherwise then A gets very high returns than B. If B chooses to advertise and A decides otherwise than vice versa takes place. If both decide not to advertise then they both get high returns.
In this case, both would choose to advertise as not advertising would result to negative returns. Advertising
Class
Professor’s Name
Institution
Date
Introduction
Game theory is an important tool that can be used to determine how the decisions made by others come into play and also subsequently influence other’s decisions. It borrows from parlor games such as chess and poker to come up with the concepts that influence it. The concept goes a long way in explaining where the theory gets its name. Its main application areas include places such as economics, coming up with strategic military policies and in the field of politics. (See Ref 1 ”Game theory is a toolkit for analyzing situations…” 30-4-2014))
Having a Dominant Strategy
The first feature is having a strategy. The strategy includes having a strategy that if
implemented will put the firm using it in pole position to beat its rivals. In most cases,
rival firms do not know in what way their rivals will act in the market. (See Ref 2 “If
you have a dominant strategy and no opportunity to agree an alternative course of action with
your opponent, play that strategy.”30-4-2014)
If two rival firms both have a strategy, then neither will out rightly know how to go about implementing the decisions. Assuming there are two companies A and B, with both having advertising as a key strategy influencing their positions in the market. If both companies A and B choose not to advertise then they will both get high returns. If A chooses to advertise and B decides otherwise then A gets very high returns than B. If B chooses to advertise and A decides otherwise than vice versa takes place. If both decide not to advertise then they both get high returns.
In this case, both would choose to advertise as not advertising would result to negative returns. Advertising
References: Defwenburg, M., 2010. Game Theory. John Wiley and Sons. Rothschild, S. Management Decisions. Lancaster Shermer, M., 2008. The Doping Dilemma. Liebreich, M., 2007. New Energy Finance. London: New Energy Finance Limited Dickson, A., 2014. Games with Private Information. Dickson, A., 2014. Signaling and Cheap Talk. Dickson, A., 2014. Dilemmas and Cooperation. Watson, J., 2013. Strategy: an introduction to Game Theory. Norton. Osborne, M., 2004. An introduction to Game Theory. Oxford University Press. Binmore, K., 2007. Playing for Real. Oxford University Press