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07 JAN, 2009
Prisoner’s Dilemma
2
Prisoner 2
Husband
Movie Cricket
Wife
Movie 2,1 0,0
Cricket 0,0 1,2
Prisoner 2
Existence
Any finite game will have at least one Nash equilibrium
possibly involving mixed strategies
Finding a Nash equilibrium is not easy
Not efficient from an algorithmic point of view
Sequential moves
One player moves
Second player observes and then moves
Examples
Industrial Organization – a new entering firm in the market
versus an incumbent firm; a leader-follower game in quantity
competition
Sequential bargaining game - two players bargain over the
division of a pie of size 1 ; the players alternate in making offers
Game Tree
1 Y 1 1 Y
x1 x3
N
B B (0,0)
N
A B x2 A A
N
Y
0 0 0
Period 1: Period 3:
A offers x1. (x2,1-x2) A offers x3.
B responds. B responds.
Economic applications of game theory
C(x) = 1
C(x) = x
Simple network from s to t with two links
Delay (or cost) of transmission is C(x)
Total amount of data to be transmitted is 1
Optimal: ½ is sent through lower link
Total cost = 3/4
Game theory solution (selfish routing)
Each bit will be transmitted using the lower link
Not optimal: total cost = 1
Price of anarchy is, therefore, 4/3
Internet
Routing
Job scheduling
Competition in client-server systems
Peer-to-peer systems
Cryptology
Network security
Sensor networks
Game programming