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Game Theory

Game theory analyzes strategic behavior that takes into account others' actions. A game has rules, strategies, and payoffs. The Prisoner's Dilemma game shows why cooperation is difficult, even when beneficial. In it, two prisoners can either confess to a larger crime or deny it. The best outcome for each is to confess, despite cooperation being better for both.

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182 views8 pages

Game Theory

Game theory analyzes strategic behavior that takes into account others' actions. A game has rules, strategies, and payoffs. The Prisoner's Dilemma game shows why cooperation is difficult, even when beneficial. In it, two prisoners can either confess to a larger crime or deny it. The best outcome for each is to confess, despite cooperation being better for both.

Uploaded by

walter0071
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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17.

3 GAME THEORY

Game theory is the tool used to analyze strategic


behaviorbehavior that recognizes mutual interdependence and takes account of the expected behavior of others.

17.3 GAME THEORY

What Is a Game?
All games involve three features: Rules Strategies Payoffs

Prisoners dilemma is a game between two


prisoners that shows why it is hard to cooperate, even when it would be beneficial to both players to do so.

17.3 GAME THEORY

The Prisoners Dilemma


Art and Bob been caught stealing a car: sentence is 2 years in jail.

DA wants to convict them of a big bank robbery: sentence is 10 years in jail.


DA has no evidence and to get the conviction, he makes the prisoners play a game.

17.3 GAME THEORY


Rules
Players cannot communicate with one another. If both confess to the larger crime, each will receive a sentence of 3 years for both crimes. If one confesses and the accomplice does not, the one who confesses will receive a 1-year sentence, while the accomplice receives a 10-year sentence. If neither confesses, both receive a 2-year sentence.

17.3 GAME THEORY


Strategies
The strategies of a game are all the possible outcomes of each player.

The strategies in the prisoners dilemma are


Confess to the bank robbery. Deny the bank robbery.

17.3 GAME THEORY


Payoffs
Four outcomes: Both confess.

Both deny.
Art confesses and Bob denies. Bob confesses and Art denies.

A payoff matrix is a table that shows the payoffs for every possible action by each player given every possible action by the other player.

17.3 GAME THEORY


Table 17.5 shows the prisoners dilemma payoff matrix for Art and Bob.

17.3 GAME THEORY


Equilibrium
Occurs when each player takes the best possible action given the action of the other player.

Nash equilibrium is an equilibrium in which each


player takes the best possible action given the action of the other player. The Nash equilibrium for Art and Bob is to confess. The equilibrium of the prisoners dilemma is not the best outcome for the players.

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