Game Theory Presentation 1229367921111224 2

Game Theory
Quantitative Analysis for Decision Making
M.Ghotbi
M.Pajhouh Niya
Abbas Keramati ( Assistant Professor)

University of Tehran – MBA
Fall 2008
Outline
• What is Game Theory?
Title
• History of Game Theory
• Applications of Game Theory
• Lorem • ipsum dolor ofsit
Key Elements amet, consectetuer
a game
adipiscing elit.ofVivamus
• Types games et magna. Fusce sed
DGDG
sem sed• magna suscipit egestas.
Nash Equilibrium (NE)
• Lorem • ipsum dolor sit
Pure Strategies amet,
& Mixed consectetuer
Strategies
adipiscing elit. Vivamus
• 2players Zero-Sumet magna. Fusce sed
games
sem sed magna suscipit egestas.
What is Game Theory?
Title
• Lorem• In strategic
ipsum games,
dolor sitagents
amet,choose strategies
consectetuer
thatelit.
adipiscing will maximize
Vivamus their return, given
et magna. Fuscethesed
strategies the other agents choose.
sem sedDGDG
magna suscipit egestas.
• Lorem ipsum dolor sit amet, consectetuer
• The mathematics of human interactions
adipiscing elit. Vivamus et magna. Fusce sed
History of Game Theory
• von Neumann wrote a key paper in 1928
Title
• 1944: “Theory of Games and Economic
Behavior”
• Lorem ipsum by vonsit
dolor Neumann
amet, and Morgenstern
consectetuer
• 1950:
adipiscing elit.Nash invents et
Vivamus concept of Nash
magna. Fusce sed
sem sed equilibrium
DGDG
• Game theory booms after this…
• 1994: Harsanyi, Nash, and Selten win Nobel
Prize in economics for game theory work
Applications of Game Theory
• Psychology
• Mathematics
Title
• Computer Science • Law
• Lorem • ipsum
Biology dolor sit amet, consectetuer
• Military Strategy
adipiscing elit. Vivamus et magna.
• Economics Fusce sed
• Management
DGDG
sem sed• magna
Political suscipit
Science egestas.
• Sports
• Lorem • ipsum dolorRelations
International sit amet, consectetuer
• Game Playing
• Philosophy
Key Elements of a game
Title
• Players: Who is interacting?
• Strategies: What are their options?
DGDG
sem sed• Payoffs: What are
magna suscipit their incentives?
egestas.
• Lorem• ipsum dolor What
Information: sit amet,
do theyconsectetuer
know?
• Rationality: How do they think?
Types of games
Title
• Cooperative or non-cooperative
• Lorem• ipsum
Zero sumdolor sit amet,
and non-zero sum consectetuer
• Simultaneous and sequential
Fusce sed
DGDG
• Perfect information and imperfect information
adipiscing elit.& Infinite
• Finite Vivamus et magna. Fusce sed
Strategies
Pure Strategies
Title
•The upper value of the game is equal
• Lorem toipsum
the minimum
dolor ofsittheamet,
maximum values
consectetuer
in the
adipiscing columns.
elit. Vivamus et magna. Fusce sed
DGDG
•The lower value of the game is equal
• Lorem toipsum dolor of
the maximum sittheamet, consectetuer
minimum values
adipiscing elit.
in the Vivamus et magna. Fusce sed
rows.
An Example:
A
Y1
TitleY2 Minimum
• Lorem ipsum
B dolor sit amet, consectetuer
adipiscing
X1
elit. Vivamus
10
et
6
magna.6
Fusce sed
DGDG
• Lorem ipsum
X2 dolor
-12 sit 7amet, consectetuer
-12
6
sem sed magna suscipit
Maximum 10 egestas.
7 7
Mixed Strategies
Title
• Lorem Aipsum
mixed strategy
dolor game exists when
sit amet, consectetuer
there is no saddle point. Each player will
then optimize their expected gain by
DGDG
determining egestas.
the percent of time to use
• Lorem each
ipsum dolor sit amet, consectetuer
strategy.
Nash Equilibrium (NE)
Title
A player’s best strategy is
• Loremthatipsum dolor
strategy that sit amet, consectetuer
maximizes
that player’s et magna. Fusce sed
payoff (utility),
knowing
magnathe strategy's of the
DGDG
sem sed suscipit
other players.
egestas.
2-players Zero-Sum games
Penny Matching:
• Each of the two players has a penny.
• Title
Two players must simultaneously choose whether
to show the Head or the Tail.

• adipiscing
Both players know elit. Vivamus
the following rules:et magna. Fusce sed
-If two pennies match (both heads or both
sem sed DGDG
tails)
then player 2 wins player 1’s penny.
• Lorem ipsum
-Otherwise, player 1dolor sit2’s penny.
wins player amet, consectetuer
Player 2
adipiscing elit. Vivamus et magna. Head FusceTail sed
sem sed magna Player suscipit 1 egestas.

Head -1 , 1 1 , -1
Tail 1 , -1 -1 , 1
Prisoner’s Dilemma
• No communication: Title
• Lorem- Strategies
ipsum must dolorbesit
undertaken
amet, without
consectetuer
the fullelit.
adipiscing knowledge
Vivamus of what the otherFusce sed
et magna.
players (prisoners)
suscipitwill do.
sem sedDGDG
magna egestas.
•adipiscing
Players (prisoners) developetdominant
elit. Vivamus magna.strategies
Fusce sedbut
aresed
sem not magna
necessarily the best
suscipit one.
egestas.
Payoff Matrix for
Prisoner’s Dilemma
Ted
Title
Confess Not Confess
1 year for Bill
adipiscing elit. Confess
VivamusBoth
et get
magna.
5 Fusce
10 sed
years for
DGDG
Bill
years Ted
• Lorem ipsum dolor sit amet,
10 years for consectetuer
adipiscing elit. Vivamus etBillmagna. Both
Fusce
get 3sed
Not Confess
sem sed magna suscipit1 year for Ted
egestas. years
An Example of
Mixed Strategy game
Title
A
B doesn’t
B believes
adipiscing elit. Vivamus et magna. believe
Fusce sed
B
DGDG
A bluffs 1 0
A doesn’t
adipiscing elit. Vivamus et 0magna. Fusce
0.5 sed
sem sed magna bluff
suscipit egestas.
Now let’s Play This Game
Pirate Game
Title
B C
A
DGDG
D E
Nash’s Equilibrium
Title
• This equilibrium occurs when each player’s
strategy is optimal, knowing the strategy's of
the other players.
• A player’s et magna. Fusce sed
best strategy is that strategy that
DGDG
maximizes egestas.
that player’s payoff (utility), knowing
the strategy's of the other players.
• So when each player within a game follows
Fusce sed
sem sed their
magna best suscipit
strategy, a egestas.
Nash equilibrium will
occur.
Definition: Nash Equilibrium
In the normal-form game {S1 , S2 , ..., Sn , u1 , u2 , ...,
Title
un}, a combination of strategies ( s1* ,..., sn* ) is a Nash
equilibrium if, for every player i,
• Lorem ipsum ui ( s1* ,..., si*−dolor
, s * *
,
1 i i +1s sit
,..., s *
n ) amet, consectetuer
Given others’
choices, player i
adipiscing ≥ ui elit.
( s1* ,..., sVivamus
*
, s
i −1 i i +1, s *
,..., et
s * magna. Fusce sed
cannot be better-off
n)
if she deviates from
sem i DGDG
all ssed magna suscipit egestas.
*
for ∈ S i . That is, si solves
si*
* * * *
• Lorem ipsum
Maximize u i 1 dolor
( s ,..., s i −1 i i +sit
, s , s 1 ,..., samet,
n) consectetuer
Subject to selit.
adipiscing i ∈ Si Vivamus et magna. Fusce sed

Nash’s Equilibrium cont.:
Bayesian Nash Equilibrium
• The Nash Equilibrium of the imperfect-

information game Title
• –Lorem
A Bayesianipsum dolor
Equilibrium sitof strategies
is a set amet, consectetuer
such that each
player is playing
adipiscing elit.a best response,etgiven
Vivamus a particular
magna. set ofsed
Fusce
beliefs about the move by nature.
sem sed DGDGmagna suscipit egestas.
– All players have the same prior beliefs about the probability
• Lorem ipsum dolor
distribution on nature’s moves.
sit amet, consectetuer
– So for example, all players think the odds of player 1 being of a
semparticular
sed magna
type is p,suscipit egestas.
and the probability of her being the other type is 1-
p
Refrences
Title
• Dixit and Nalebuff: Thinking Strategically
• Dutta:
Strategies and Games: Theory and Practice
• www.gametheory.net
sem DGDG
sed magna suscipit egestas.

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Game Theory

Quantitative Analysis for Decision Making

Abbas Keramati ( Assistant Professor)

to show the Head or the Tail.

sem sed magna Player suscipit 1 egestas.

sem sed magna suscipit egestas.

• The Nash Equilibrium of the imperfect-

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