Chapter 10 Game Theory Learning Journal

Name: Romeo Bordallo Jr.

Subject: Microeconomic Analysis
Professor: Maria Corazon E. Mercado, DBA

Game theory is named by the fact that it attempts to comprehend the strategic activities
of two or more "players" in a system with predetermined rules and consequences. Game
theory is most commonly utilized in the study of business and economics, while it is used in a
variety of disciplines. The "games" could include how two competitors react to each other's
price cuts, whether one firm should buy another, or how stock market traders react to price
fluctuations. Theoretically, these games are related to prisoner's dilemmas, the dictator game,
the hawk-and-dove game, and battle of the sexes, among other versions as mentioned by one
of the reporters.
However, the word 'game' should not be misinterpreted. The study isn't limited to
sports; as economists, we're interested in a wide range of decisions, from those made by
businesses competing in a market (or several markets) to those made by individuals deciding
whether or not to reduce their pollution output.
The mathematical study of decision-making, conflict, and strategy in social
circumstances is known as game theory. It clarifies how we engage during critical decision-
making processes.
Assume you're shopping for a car at a dealership. The dealer wants to sell the car and
has a set price that he can't go below without losing money. You want to buy the car, but you
want to obtain the greatest deal possible. The auto dealer's negotiating strategy is based on the
fact that you desire the car, that he may sell it to another client, that selling the car will earn
him praise, and the break-even point below which he can't go lower.
You negotiate based on the fact that the dealer wants to sell the car, that there is a
profit margin into which you can haggle to reduce the car's price, and that the dealer is aware
that your presence in his office indicates that you are looking to buy a car.
We use logic that could be explained using game theory every time we interact with
another human being, whether it's eyeing up the last muffin at the coffee shop counter or
doing a favor for a work colleague that we hope would be repaid in kind.
The bottom line is Game theory can be used very effectively as a tool for decision-
making whether in an adversarial, business, or personal setting.