Introduction: The purpose of this economic analysis is to address Prisoners’ Dilemma, a classic game theory example, as a frequently existing phenomenon due to the fact that many examples in human interaction have the same payoff matrix as it has. Through the article entitled “NKorea accuses US, SKorea of cyberattacks” published last March 16, 2013 by the Philippine Star, we will examine the applicability of prisoners’ dilemma which is of the interest to the people in the fields of economics, politics and sociology as well as to the people of biological sciences. Assumptions: United States and South Korea are both suspects in a cyberattack. Their representatives are arrested and brought to the North Korea police station. They are interrogated separately about the crime they committed, but not enough evidence exists to convict them outright. They both have the option of confessing to the crime or keeping silent, and they both know that the other representative has this option as well. To determine motives, we will assign a range of preferences to the different outcomes, with 0 representing the worst outcome (pay 50 billion dollars) and 4 the best (pay 1 thousand dollars). 50 billion dollars 100 million dollars 20 million dollars 1 thousand dollars : 0 (one does not confess; other confesses) : 1 (both confess) : 2 (one confesses; other does not confess) : 4 (both do not confess)
Situation: If both representatives admit wrongdoing, then each will have to pay 100 million dollars. If neither confess, enough evidence is available to make them pay for a lesser crime and both will pay 1 thousand dollars each. However, if only one confesses, in exchange for testifying, he will only be charged 20 million dollars while the other will be fined 50 billion dollars.
Analysis: The following matrix shows the payoffs for this dilemma associated...
...GameTheory in Economics
Gametheory is a concept of decision making that considers more elements beyond just benefits minus costs. Specifically, it includes the interaction between participants. In economics, the theory attempts to predict the participants’ optimal decisions. It has found a core place in economic decisionmaking and policymaking for its inherent ability to predict reactions in resource allocation, business negotiation, and other economic aspects. Gametheory is mostly associated with decisiontheory and other contexts such as cooperation and negotiations.
From its definition, it is evident that the gametheory is largely used in the study of the human decision making processes. In psychology, its equivalent is known as the theory of social situations. In economics, however, gametheory tends to focus on sets of outcomes known as equilibrium that represent the most rational solutions to each situation. Gametheory emanates from the complexity of human interactions; thus, in a situation where an individual is dealing with an inanimate object such as a tree, he or she does not expect the tree to fight back or respond (LeytonBrown and Shoham 51). The environment can also be considered neutral to what is done to the tree, at least in direct and...
...SYMBOLIC SYSTEMS 202: The Rationality Debate (3 units) Winter Quarter 20032004, Stanford University Instructor: Todd Davies
GameTheory Through Examples (2/11/04)
Games against nature  decision theory for a single agent
Expected utility theory for a single agent is sometimes called the theory of "games against nature". Consider this example.
Example 1: Planning a party
Our agent is planning a party, and is worried about whether it will rain or not. The utilities and probabilities for each state and action can be represented as follows:
  Nature's states:  
  Rain No rain 
  (p=1/3) (~p=2/3) 
Party planner's possible actions: Outside 1 3 
...
...marksRevision materials on the Economics blog: AS Micro  AS Macro  A2 Micro  AS Macro A2 Markets & Market Systems Oligopoly  GameTheory 

“When I am getting ready to reason with a man I spend onethird of my time thinking about myself and what I am going to say, and twothirds thinking about him and what he is going to say.”
Abraham LincolnA game occurs when there are two or more interacting decisiontakers (players) and each decision or combination of decisions involves a particular outcome (payoff.) The fate (or the payoff) of a player in a game depends not only on the actions of that player but also on the other players!The Monty Hall problem!
Suppose you’re on a game show, and you’re given the choice of three doors. Behind one door is a car, behind the others, goats. You pick a door, say number 1, and the host, who knows what’s behind the doors, opens another door, say number 3, which has a goat. He says to you, “Do you want to pick door number 2?” Is it to your advantage to switch your choice of doors?
Possible answer to the Monty Hall problemGame theory is mainly concerned with predicting the outcome of games of strategy in which the participants (for example two or more businesses competing in a market) have incomplete information about the others' intentions. The Prisoners’ DilemmaThe classic example of gametheory...
...consult the experts of the gametheory at this point. In the 1980’s Axelrod and Hamilton worked on a famous problem in the gametheory, the Prisoner’s Dilemma, exactly because it deals with this problem. The rational pursuit of individual selfinterest drives everybody into an outcome that is not favored by anybody. Imagine two partners in a crime being interrogated at the same time. Each one has two options, cooperate with the other and keep quiet or betray the other and confess. Case C, we can say, is if both cooperate then the police cannot get much out of them and they will both get a light sentence (2 years); if one defects and the other keeps quiet then the traitor will get an even lighter sentence (1 year) – this is case B. If the one who cooperates gets the longest sentence (10 years), this is the worst end of the deal and we can call this case S. In a case when both betray one another they will both get a sentence (6 years) longer than if they had cooperated but lighter than if one had kept quiet and the other spoke, and this is case D.
Out of the four outcomes, B is the best and S is the worst from an individualistic point of view, while the order of preference is B, C, S, D. We should realize that this is a nonzero sum game. In a zerosum game, my loss is your gain; for example, if we are trying to divide a certain amount of money in the bank into two, anything over fifty...
...Pahwa Math Research Paper The Application of the Nash Equilibrium in GameTheory to Microeconomics ! One of the most challenging problems a business owner comes across is the
amount of a certain item he or she should stock and the price at which to sell it. Many factors play into ﬁnding this appropriate price. These include the cost of stocking the item, the projected demand, and what the competition is pricing the same item at. The latter of the three factors is considered to be the most challenging to consider. When attempting to tackle this problem we must consider three factors. First, we must be able to accurately predict the outcome of our decisions. Second, we must be able to accurately predict our competitionʼs decisions. Finally, we must be able to predict the outcome of our competitionʼs decisions. If all of these three requisites can be met our solution will be able to provide us the necessary information needed to price our item. ! The solution to this problem is gametheory. Gametheory is a branch of
mathematics that is used to predict the actions of an opponent or competitor in a certain “game.” Gametheory has many applications including war, macro and microeconomics, and even biology. Gametheory is a relatively new concept created by John von Neumann and Oskar...
...In creating a game theoretical model to try and better understand the quandary in our kitchen, we will use repeated prisoners’ dilemma games, collective action analysis, and finally, a two species evolutionary game.
We begin by applying a Repeated Prisoners’ Dilemma I (PDI) model to our situation. The rules for a PDI game are simple; the two players can either cooperate (wash) or defect (not wash). The players can fully observe each other’s move to wash their dish or to not wash. They will move in sequential order where player one moves first and the second player observes the move (see fig. 1). Then the second player carries out a move. The strategy called titfortat (tft), where player one cooperates on the first play and then does what the other player did the previous period, will be used to model the behavior of our players. The probability of continuing the game (p) is less than one, and so we have a finite game of unknown length. In our model, (p) is set at .9 showing that there is a ninety percent chance of continuation. We believe there is a ten percent chance that one player will not be using the kitchen to cook on the following day, which would end the current game. Using the tft strategy will help us to understand when a player’s payoffs make sense to cooperate, defect once, or defect forever on dish duty given the discount rate (r) and the...
... 2012 
 Application Of GameTheory to Business: Preliminary Findings for Term paper
Saurabh Mandhanya 11p164Rajat Barve 11p157Shashank Gupta 11p166Deepak Bansal 11P133Padmini Narayan 11p152Lizanne Marie Raphael 11P025 
[ The Kargil War: Analysis and Learning Through GameTheory ] 

Introduction
India and Pakistan have been involved in conflict over Kashmir since Independence. It has led to numerous wars and attacks. The relations and wars over Kashmir can be studied using GameTheory. Tit for Tat policy has been practiced by both nations. The pay of for wars for both countries has been changing depending on the context. This context has been based on many parameters –
1. Ally countries – US and China are widely regarded as Pakistan allies. China has been against India due to border issues. USSR has been traditionally supporting India until recently. The situation keeps on changing with changing stance of allies.
2. International support  International communities like UN tries to solve the conflict through negotiations.
3. Military strength – It keeps on changing depending upon development and purchase of weapons on both sides.
4. Resources including financial and others – India has always been in a relatively better position due to more available resources.
5. Leadership of both countries especially of Pakistan (Army Rule) – Army...
...ECON 3311 – Fall 2012
Extra Credit Homework – GameTheory
1. What is the Nash equilibrium in the following game?
2. Does the following game have a Nash equilibrium? Does it have more than one Nash equilibrium? If so, what are they?
3. CocaCola and Pepsi are competing in the Brazilian softdrink market. Each firm is deciding whether to follow an aggressive advertising strategy, in which the firm significantly increases its spending on media and billboard advertising over last year’s level, or a restrained strategy, in which the firm keeps its advertising spending equal to last year’s level. The profits associated with each strategy are as follows:
What is the Nash equilibrium in this game? Is this game an example of the prisoners’ dilemma? Why?
4. In a small country there are only two major airline firms. Each firm is deciding whether to offer a frequent flyer program. The annual profits (in millions of dollars) associated with each strategy are summarized in the following table (where the first number is the payoff to Airline A and the second to Airline B):
a) Does either player have a dominant strategy? If so, what is it?
b) Is there a Nash equilibrium in this game? If so, what is it?
c) Is this game an example of the prisoners’ dilemma? Explain.
5. Two pipeline firms are contemplating entry into a market...
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