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Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
Game Theory and Negotiations
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Game Theory and Negotiations

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What is game theory? …

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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