Depending on whether “better” is defined with weak or strict an inequality, the strategy is termed strictly dominant strategy or weakly dominant. A player in game theory may be regarded as a single person or an organisation in the real world subject to decision making with a certain amount of resources. 10FRIDAY2020 can only be used on orders that are under 14 days delivery. TOS 7. In employing each strategy, firm A moves cautiously and assumes that whatever strategy it employs, its rival В will always adopt that counter-strategy which will provide A with the minimum pay-off. In the fourth quadrant both have high pricing strategy. Similarly, the expected value of the game V for В = 2/3×1/3x 6+2/3×2/3×2+1/3×1/3×4+1/3×2/3×6 = 36/9 = 4. As said above, game theory has practical applications in several fields. But in this case both had dominant strategy as low pricing. Thus, it helps with: Economists use this theory to analyze the actions of oligopoly firms, such as OPEC. Non-cooperative non-constant- sum games may be of a variety of types. Our academic experts are ready and waiting to assist with any writing project you may have. If any one of the two firms employs its own strategy, it will be counteracted by the other’s strategy if A sticks to its maximin strategy 3, В will gain by selecting the non minimax strategy 1. Further, game theory has been used to explain the market equilibrium when more than two firms are involved. A game of perfect information is a game in which every player always knows every move that other players have made that will influence the result of his or her own choice of strategies. Firm В is also cautious about the counter-strategy of its rival A. В knows that whatever move it will make in adopting a particular strategy, A will counteract it by adopting a counter-strategy, thereby leaving В with a worse pay-off. which gives him the mathematical expectation of a gain not less than, or of a loss not greater than, a certain particular value. Following this rule, the probability of A choosing strategy 1 is 1/3, and of choosing strategy 2 is 2/3. Copyright © 2003 - 2020 - UKEssays is a trading name of All Answers Ltd, a company registered in England and Wales. The minimax is thus bound to exceed the maximin. The minimax strategy followed by В cannot be improved upon by the maximin strategy adopted by A, if the pay-off matrix has a saddle point. The pay-off matrix in Table 2 illustrates this. In Nash equilibrium, each player adopts a strategy that is his best choice, given what the other player does. A strategy is dominant if, regardless of what any other players do, the strategy earns a player a larger payoff than any other. Lastly, each firm assumes that its opponent will always make a wise move and it would try to countermove that to protect itself from any possible loss. It is too much to expect the players to act rationally, especially when the problem is one of distributing their joint profit equitably. They found that cooperation generally is useful for expandin… Moreover, most entrepreneurs act on the presumption of the existence of favourable market conditions and the question of making the best of the worst does not arise at all. Each tries to have the most desirable expected value of the game (or pay-off) as against his rival; and is therefore, in search of a set of probabilities for his mixed strategy so as to have the highest expected pay-off. In the second quadrant cola has higher pricing and Pepsi got lower pricing. Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UKEssays.com. Game theory is a branch of applied mathematics that studies strategic situations where players choose different actions in an attempt to maximize their returns. The situation of players, as well as the environmental factors can be changed, therefore most games are non-static and do not apply a single move solution. The former is known as cooperative non-constant-sum game and the latter as non-cooperative non-constant-sum game. It “is a probability distribution that assigns a definite probability to the choice of each pure strategy in such manner that the sum of the probabilities is unity for each participant.” It is just giving a player a set of dice to throw and determine the strategy to be chosen. but in this case the root and style of action of competitor is highly confidential so it makes difficult to the others. A game has set rules and procedures which two or more participants follow. The reason being that player (firm) A in the game always selects the maximum of the minimum rows, whereas В always chooses the minimum of the maximum columns. Game theory also highlights the importance of self-interest in the business world. Moreover it is much more difficult to determine the costs and motivations of others players (LaValle, 2012). When the minimax and the maximin in a pay-off matrix are equal, it is a strictly determined game. For this, it uses the solution without saddle point under constant-sum-two-person game. Thus, it helps with: Economists use this theory to analyze the actions of oligopoly firms, such as OPEC. There are two types of games: constant- sum and non-constant-sum. The most famous 2-by-2 matrix example in this context is the Prisoner’s dilemma. Thus each time A adopts a technique, its profit is reduced to the minimum by B’s counterstrategy. A key step in a game theoretic analysis is to discover which strategy is a person’s best response to the strategies chosen by the others. Each rival moves on this presumption that his opponent will always make a wise move and then he adopts a countermove. 7. But before we start the analysis of the theory of games, it will be useful to digress on certain fundamentals of game theory. 9. In some situations, the assumptions of game theory in which management has to take strategic marketing decisions (time, dynamism, interdependence and interactivity). Game theory implementing that conflict analysis or interactive decision theory. Management might adopt the most profitable counter-strategy to tackle such problems. If any suspect confesses, they might go free, and split the proceeds of their crime which we respect by 5 unit of utility of each suspect. The maximum pay-off from each strategy is thus 10, 9 and 8 shown in “Col. B’s worse pay off means that A receives very large profit and В is left with a very little residual. Thus like the other duopoly models, game theory fails to provide a satisfactory solution to the duopoly problem. The solution lies in either collusion or non-collusion between the two players. Both resort to the game of dice to arrive at a solution. Despite these limitations, game theory is helpful in providing solutions to some of the complex economic problems even though as a mathematical technique, it is still in its development stage. The above matrix reveals that there is one optimal choice of strategy for a player without considering the choice of the other player.