Game Theory Fundamentals
APPLICATION OF GAME THEORY
By Abinaya Naresh Ananthapadmanabhan P Dhivya Kannan Vidyalakshmi P
INTRODUCTION
Game theory is the study of strategic decision making. It is a study of how to mathematically determine the best strategy for given conditions in order to optimize the outcome. Game theory focuses on how groups of people interact. It focuses on how “players” in economic “games” behave when, to reach their goals, they have to predict how their opponents will react to their moves.
It is the study of competitive interaction; it analyzes possible outcomes in situations where people are trying to score points off each other, whether in bridge, politics or war. You do this by trying to anticipate the reaction of your competitor to your next move and then factoring that reaction into your actual decision. It teaches people to think several moves ahead.
A famous quote by an anonymous author which goes “it doesn’t matter if you win or lose but how you play the game” missed the point. It matters very much. According to game theory, it’s how you play the game that usually determines whether you win or lose.
A BRIEF HISTORY
0-500 AD : http://www.econ.canterbury.ac.nz/personal_pages/paul_walker/gt/hist.htm
The 1st known recording of an application of game theory.
The Babylonian Talmud is the compilation of ancient law and tradition set down during the first five centuries A.D. which serves as the basis of Jewish religious, criminal and civil law. One problem discussed in the Talmud is the so called marriage contract problem: a man has three wives whose marriage contracts specify that in the case of this death they receive 100, 200 and 300 respectively. The Talmud gives apparently contradictory recommendations. Where the man dies leaving an estate of only 100, the Talmud recommends equal division. However, if the estate is worth 300 it recommends proportional division (50,100,150), while for an estate of 200, its
By Abinaya Naresh Ananthapadmanabhan P Dhivya Kannan Vidyalakshmi P
INTRODUCTION
Game theory is the study of strategic decision making. It is a study of how to mathematically determine the best strategy for given conditions in order to optimize the outcome. Game theory focuses on how groups of people interact. It focuses on how “players” in economic “games” behave when, to reach their goals, they have to predict how their opponents will react to their moves.
It is the study of competitive interaction; it analyzes possible outcomes in situations where people are trying to score points off each other, whether in bridge, politics or war. You do this by trying to anticipate the reaction of your competitor to your next move and then factoring that reaction into your actual decision. It teaches people to think several moves ahead.
A famous quote by an anonymous author which goes “it doesn’t matter if you win or lose but how you play the game” missed the point. It matters very much. According to game theory, it’s how you play the game that usually determines whether you win or lose.
A BRIEF HISTORY
0-500 AD : http://www.econ.canterbury.ac.nz/personal_pages/paul_walker/gt/hist.htm
The 1st known recording of an application of game theory.
The Babylonian Talmud is the compilation of ancient law and tradition set down during the first five centuries A.D. which serves as the basis of Jewish religious, criminal and civil law. One problem discussed in the Talmud is the so called marriage contract problem: a man has three wives whose marriage contracts specify that in the case of this death they receive 100, 200 and 300 respectively. The Talmud gives apparently contradictory recommendations. Where the man dies leaving an estate of only 100, the Talmud recommends equal division. However, if the estate is worth 300 it recommends proportional division (50,100,150), while for an estate of 200, its