Game

Theory
Rahul Kumar S
20BCE1878
 GAME THEORY

01
WHAT IS
02
GAME
TYPES
THEORY ?

04
03 CONCLU
LIMITATIONS SION
 GAME THEORY
Game theory is the study of the ways in which interacting choices of economic agents
produce outcomes with respect to the preferences (or utilities) of those agents, where the
outcomes in question might have been intended by none of the agents.
It was first presented by Neumann and Morgenstern in their classic work, Theory of Games
and Eco­nomic Behavior, published in 1944 which has been regarded as a “rare event” in
the history of ideas.
Game theory grew as an attempt to find the solution to the problems of duopoly, oligopoly
and bilateral monopoly.
 TYPES

 Cooperative and Non-Cooperative Games:

Cooperative games are the one in which players are convinced to adopt a particular strategy through negotiations
and agreements between players. However, non-cooperative games refer to the games in which the players decide on
their own strategy to maximize their profit.

 Simultaneous Move Games and Sequential Move Games:

In simultaneous move, players do not have knowledge about the move of other players. On the contrary, sequential
games are the one in which players are aware about the moves of players who have already adopted a strategy.

 Symmetric and Asymmetric Games:

In symmetric games, strategies adopted by all players are same. Symmetry can exist in short-term games only
because in long-term games the number of options with a player increases. The decisions in a symmetric game
depend on the strategies used, not on the players of the game. In asymmetric games, the strategy that provides
benefit to one player may not be equally beneficial for the other player. However, decision making in asymmetric
games depends on the different types of strategies and decision of players.
 Payoff matrix in game theory:
A payoff matrix is a tool that is used to simplify all of the possible outcomes of a strategic decision. It is a visual
representation of all the possible strategies and all of the possible outcomes. Choose which player whose payoff you
want to calculate. Multiply each probability in each cell by his or her payoff in that cell. Sum these numbers together.
This is the expected payoff in the mixed strategy Nash equilibrium for that player.

 Zero sum game in game theory:

In game theory and economic theory, a zero-sum game is a mathematical representation of a situation in which an
advantage that is won by one of two sides is lost by the other. If the total gains of the participants are added up, and
the total losses are subtracted, they will sum to zero.

Game theory assumes that each
firm has knowledge of the
strategies of the other as against
its own strategies and is able to
construct the pay-off matrix for
a possible solution.  An
entrepreneur is not fully aware
of the strategies available to
him, much less those available
to his rival. He can only have a
guess of his and his rival’s
strategies.
It is easy to understand a two-
person constant-sum game. But
as the analysis is elaborated to
three or four person games, it
becomes complex and difficult.
However, the theory of games
has not been developed for
games with more than four
players.
LIMITATIONS
The theory of games assumes
that both the duopolies are
prudent men. Each rival moves
on this presumption that his
opponent will always make a
wise move and then he adopts a
countermove. This is an
unrealistic assumption because
entrepreneurs do not always act
rationally.
CONCLUSI
ON
Thus like the other duopoly models, game theory
fails to provide a satisfactory solution to the
duopoly problem To date, there have been no
serious attempts to apply game theory to actual
market problems, or to economic problems in
general.
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.
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