Presentation on Game Theory Student of the University of Gujrat. Department - MANAGEMENT SCIENCES Subject - Managrial Economics

2. Managerial Economics
• Submitted To:-
• Sir Yasir Zaman
• Submitted By:-

3. Topic
Game theory

4. Contents
• Game Theory.
• Concept of game theory
• Some Applications of Game Theory
• What is a Game
• Nash Equilibrium
• The Prisoner’s Dilemma
• A Sequential Game
• Pure Strategies
• Mixed Strategies

5. Game theory
• Game theory models strategic behavior by agents
who understand that their actions affect the actions
of other agents.

6. What is the concept of game theory?
• Game theory is the process of modeling the strategic
interaction between two or more players in a situation
containing set rules and outcomes. While used in a
number of disciplines, game theory is most notably used
as a tool within the study of economics.

7. Some Applications of Game Theory
• The study of oligopolies (industries containing only a few
firms)
• The study of cartels; e.g. OPEC.
• The study of externalities; e.g. using a common resource such
as a fishery.
• The study of military strategies.

8. What is a Game?
• A game consists of
• a set of players
• a set of strategies for each player
• the payoffs to each player for every possible list of strategy
choices by the players.

9. Two-Player Games
• A game with just two players is a two-player game.
• We will study only games in which there are two
players, each of whom can choose between only
two strategies.

10. An Example of a Two-Player Game
• The players are called A and B.
• Player A has two strategies, called “Up” and “Down”.
• Player B has two strategies, called “Left” and “Right”.
• The table showing the payoffs to both players for each of the
four possible strategy combinations is the game’s payoff
matrix.

11. Nash Equilibrium
• A play of the game where each strategy is a best
reply to the other is a Nash equilibrium.
• Our example has two Nash equilibria; (U,L) and
(D,R).

12. The Prisoner’s Dilemma
• To see if Pareto-preferred outcomes must be what
we see in the play of a game, consider a famous
second example of a two-player game called the
Prisoner’s Dilemma.

13. A Sequential Game
•Sometimes a game has more than one Nash
equilibrium and it is hard to say which is more
likely to occur than the others.

14. Pure Strategies
• A pure strategy determines all your moves during
the game (and should therefore specify your moves for all
possible other players' moves). A mixed strategy is a
probability distribution over all possible pure
strategies (some of which may get zero weight).

15. Mixed Strategies
• In the theory of games a player is said to use a mixed
strategy whenever he or she chooses to randomize over
the set of available actions. Formally, a mixed strategy is a
probability distribution that assigns to each available
action a likelihood of being selected.