OPERATIONS RESEARCH - 3

HISTORY
von Neumann wrote a key paper in 1928 1944: Theory of Games and Economic Behavior by von Neumann and Morgenstern 1950: Nash invents concept of Nash equilibrium. 1994: Harsanyi, Nash, and Selten win Nobel Prize in economics for work in game theory.

APPLICATIONS
Mathematics Computer Science Biology Economics Political Science International Relations Philosophy Psychology Law Military Strategy Management Sports Game Playing

KEY ELEMENTS
Players: Who is interacting? Strategies: What are their options? Payoffs: What are their incentives? Information: What do they know? Rationality: How do they think?

TYPES OF GAMES
Cooperative or non-cooperative. Zero sum and non-zero sum. Simultaneous and sequential. Perfect information and imperfect information. Complete and incomplete information. Finite & Infinite Strategies.

SOME TERMS
A game is cooperative if the players are able to form binding commitments. A game is one of perfect information if all players know the moves previously made by all other players. Ex : Chess. A game is one of complete information if every player knows the payoffs and strategies available to other players.
Nature plays the first move.

A symmetric game is a game where the payoffs for playing a particular strategy depend only on the other strategies employed, not on who is playing them. If one can change the identities of the players without changing the payoff to the strategies, then a game is symmetric.

SOME TERMS
In a constant sum game, the sum of all players' payoffs is the same for any outcome. Hence, a gain for one participant is always at the expense of another. A zero sum game is a special case of a constant sum game in which all outcomes involve a sum of all player's payoffs of 0.

SOME TERMS
Information Set : Knowledge each player has before he acts. Common Knowledge : Amount of information with every player and the knowledge that every player has this information, ad infinitum.

SOME TERMS
A strategy is a complete contingent plan for a player in the game. Strategy space for player i is Si.
S1 = {C, D}

Strategy profile describes strategies for all the players.

S = {(C,C), (C,D),(D,C),(D,D)}

Pay-off is given for a particular strategy profile chosen for player i : ui(s)
u1(C,D) = 0; u2(C,D) = 3;

NASHS EQUILIBRIUM
This equilibrium occurs when each players strategy is optimal, knowing the strategy's of the other players. A players best strategy is that strategy that maximizes that players payoff (utility), knowing the strategy's of the other players. So when each player within a game follows their best strategy, a Nash equilibrium will occur.