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071223 [N]
Created @July 8, 2023 12:13 PM

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Game Theory

Study of strategic decision-making where situations, games, participants, players

Study how people determine strategies under different situations in the face of
competing moves acted out by other players

Deals with problems in which a player’s strategy depends on what the other
players do

Applications

Deciding how to commute to work

Business competing in a market

Diplomats negotiating a treaty

Gamblers betting

Auction

Voting

Evolutionary Biology

Game

Consists of a set of players and set of actions, moves, for each of them

Sequence of actions — strategy

Each player receives a payoff that depends on the actions of all the players
involved

Terminologies

Players

Moves

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 Strategies

Payoff function

Extensive Form

Normal Form

Games in normal form are used to analyze one-shot games

Each player chooses one actions and all of them chooses

simultaneously

How do we decide

Maximin Solution

Involves choosing strategy that gives you the maximum possible

payoff even when your opponent is able to guess your choice

Maximum among worst payoffs

Minimum value then Maximum value

Left choice, first x value

Top choice, second y value

(x,y) values

Pessimistic approach

Proposed by John von Neumann

Nash Equilibrium

List of strategies with one strategy per player that each strategy
on the list is the best response to other strategies on the list

Maximum value choice, cell where both choices are

selected

Dominant Strategy Equilibrium

Refinement of Nash

Basic Idea

What would be the player’s best strategy to different moves of the other
players to achieve the best or maximum playoff

Game Classifications

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 Number of players

Simultaneous

Each player has only one move and all these moves are done
simultaneously

Sequential

No two players move at the same time and players may have several
moves

Randomness

Perfect information

A game is perfect information if each player, when making decisions, is

perfectly informed of all the actions done, otherwise, imperfect

Basketball, Chess

Complete information

The structure of the game and the payoffs of the players are commonly
known to all players

Point system, rules, etc are known

Poker, Basketball

Perfect vs Complete information

• Perfect Information —
Every player observes other players’ moves but may lack
some information on others’ payoff or the structure of the
game
• Complete Information —
The structure of the game and the payoff functions of the
players are commonly known but players may not see all of
the moves made by the other players

A game with complete information may or may not have perfect

information, & vice versa

Zero-sum game

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 In every possible outcome of the game, the sum of the payoffs of each
player equals zero

Cooperative

Players can cooperate their strategies by forming coalitions and share

payoffs

Non-cooperative

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