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What is game theory?

What are the basic Games?

Learn the basics of Game theory

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- 1. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Game Theory and Conflict Based on: “Games People Play” By Prof. Scott Stevens The Teaching Company
- 2. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Game Theory
- 3. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com What is game theory? • Game theory is a branch of applied mathematics that studies strategic situations where participants choose different actions in an attempt to maximize their returns.
- 4. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com It may be used to explain …
- 5. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com … Predict …
- 6. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com … Evaluate …
- 7. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com … Human Behavior
- 8. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com
- 9. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Attention! • Bad news: Knowing game theory does not guarantee winning • Good news: Framework for thinking about strategic interaction
- 10. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Why game theory? • Because we can formulate effective strategy… • Because we can predict the outcome of strategic situations… • Because we can select or design the best game for us to be playing…
- 11. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Classical Games! 2x2 Simultaneous Games
- 12. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Definition • 2 players • One of two moves • Neither of the players know what the other is doing before he/she decides
- 13. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com
- 14. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com The coordination game! • YOU prefer one of two choices • YOU prefer to have same choice as OTHER • Luckily, OTHER prefers the same choice!
- 15. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Example • YOU prefer developing software using Windows • YOU and OTHER are developing software to the same customer • YOU and OTHER prefer developing using the same operating system • Operating system choices are Windows or Linux!
- 16. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Payoff Matrix Payoff YOU Windows Linux OTHER Windows 2+2 0+1 Linux 1+0 1+1 Sometimes, the solution is not obvious! 1- If you BOTH do not think in the same way! 2- If OTHER is Irrational!!!
- 17. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com
- 18. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com The battle of the sexes game! • YOU prefer one of two choices • YOU prefer to have same choice as OTHER • Unfortunately, OTHER prefers the other choice!
- 19. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Same Example • YOU prefer developing software using Windows, while, OTHER prefers Linux • YOU and OTHER are developing software to the same customer • YOU and OTHER prefer developing using the same operating system • Operating system choices are Windows or Linux!
- 20. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Different Payoff Matrix! Payoff YOU Windows Linux OTHER Windows 2+1 0+0 Linux 1+1 1+2 NO GOOD SOLUTION!
- 21. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Solutions! • Communicate both ways • Send a message  one way communication • Select your preference and guarantee at least one point! • Guess based on previous experience of OTHER preferences • The use of a focal point
- 22. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com
- 23. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com The Chicken game! • YOU prefer one of two choices • YOU prefer that OTHER have opposite choice • Unfortunately, OTHER prefers the same choice!
- 24. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Same Example • YOU and OTHER prefer developing software using Windows • YOU and OTHER are developing software to the same customer • YOU and OTHER prefer developing using the different operating systems so that the customer remains dependent on you only! • Operating system choices are Windows or Linux!
- 25. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Different Payoff Matrix! Payoff YOU Windows Linux OTHER Windows 0+0 1+3 Uniux 3+1 1+1 You both end crashing into Windows!
- 26. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Solution! • One player has to commit to a choice!
- 27. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com
- 28. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com The Prisoners’ Dilemma game! • If YOU and OTHER choose choice A, you both win 3 points • If YOU choose A and OTHER chooses B, you win 1 point, and OTHER wins 4 points • If YOU choose B and OTHER chooses A, you win 4 points and OTHER wins 1 point • If you both chose B, you both get 2 points
- 29. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Same Example • If YOU and OTHER develop using Windows, you get paid 3 M$ each • However, if only one of you develops for Linux, he gets 4 M$ for being distinguished, while the other only gets 1 M$ for being so old fashioned • If you both develop for Linux, you get paid only 2 M$ each as there is no distinguishing and you probably used open source code!
- 30. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Different Payoff Matrix! Payoff YOU Windows Linux OTHER Windows 3+3 4+1 Linux 1+4 2+2 What would you do?
- 31. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Solutions! • The only RATIONAL solution for both of us is to develop using Linux! … It is safer!!! • We both reach the less than best solution • UNLESS we cooperate!
- 32. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Bidding Example!
- 33. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Two-Tiered bidding • In 1988 “Bloomingdales” had a market price of 100$ per share … it is being sold out! • “Macy’s” offered 102$ per share provided that they get majority of stocks (50% +1) • Robert Campeau offered a two-tiered offer of 105-90$ per share  for the first 50% of shares, he pays 105$ per share for all shares and for the rest he pays an extra 90$ per share for all shares!
- 34. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Let’s use numbers • If there are only 10 shares … the total share price is 1000$ • If Macy’s took over, they will pay 102$ for each of the first 5 shares and the rest remains for 100$, the total price will be 1010$ • If Campeau gets the first 5 shares, he will pay 525$ for them, for the other 5 shares, he will; pay 450$ for a total of 975$ !!!
- 35. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Every body loses except Campeau! • Campeau created a prisoners’ dilemma

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