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    Applications of Game Theory: M.Thivya & M.Shanmugarani Department of Mathematics

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    Kumaresh Salem
    This document discusses various applications of game theory including Nash equilibrium, Nash's theorem, dynamic games, mechanism design, network examples, and game programming. It provides examples of how game theory can be used to analyze oligopolies, cartels, externalities, military strategies, international negotiations, and bargaining situations. It also discusses challenges in applying game theory such as finding Nash equilibria and evaluating moves in complex games like chess.

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    Applications of Game Theory: M.Thivya & M.Shanmugarani Department of Mathematics

    Uploaded by

    Kumaresh Salem
    31 views14 pages
    This document discusses various applications of game theory including Nash equilibrium, Nash's theorem, dynamic games, mechanism design, network examples, and game programming. It provides examples of how game theory can be used to analyze oligopolies, cartels, externalities, military strategies, international negotiations, and bargaining situations. It also discusses challenges in applying game theory such as finding Nash equilibria and evaluating moves in complex games like chess.

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    This document discusses various applications of game theory including Nash equilibrium, Nash's theorem, dynamic games, mechanism design, network examples, and game programming. It provides examples of how game theory can be used to analyze oligopolies, cartels, externalities, military strategies, international negotiations, and bargaining situations. It also discusses challenges in applying game theory such as finding Nash equilibria and evaluating moves in complex games like chess.

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    Attribution Non-Commercial (BY-NC)
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    Download as ppt, pdf, or txt
    31 views14 pages

    Applications of Game Theory: M.Thivya & M.Shanmugarani Department of Mathematics

    Uploaded by

    Kumaresh Salem
    This document discusses various applications of game theory including Nash equilibrium, Nash's theorem, dynamic games, mechanism design, network examples, and game programming. It provides examples of how game theory can be used to analyze oligopolies, cartels, externalities, military strategies, international negotiations, and bargaining situations. It also discusses challenges in applying game theory such as finding Nash equilibria and evaluating moves in complex games like chess.

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    APPLICATIONS OF GAME THEORY

    M.THIVYA & M.SHANMUGARANI DEPARTMENT OF MATHEMATICS PADMAVANI ARTS & SCIENCE COLLEGE FOR WOMEN, SALEM-11.

    Nash equilibrium
    Each players predicted strategy is the best response

    to the predicted strategies of other players No incentive to deviate unilaterally Strategically stable or self-enforcing
    Prisoner 2 Confess Prisoner 1 Confess Not Confess -3,-3 -9,0 Not Confess 0,-9 -1,-1

    Nashs Theorem
    Existence Any finite game will have at least one Nash equilibrium possibly involving mixed strategies

    Finding a Nash equilibrium is not easy Not efficient from an algorithmic point of view

    Dynamic games
    Sequential moves One player moves Second player observes and then moves

    Examples Industrial Organization a new entering firm in the market versus an incumbent firm; a leader-follower game in quantity competition Sequential bargaining game - two players bargain over the division of a pie of size 1 ; the players alternate in making offers Game Tree

    Game tree example: Bargaining


    (x1,1-x1) 1 x1 Period 2: B offers x2. A responds. 1 x3

    (x3,1-x3) 1

    N B (0,0)

    B
    A

    x2 A N

    Y
    0 Period 1: A offers x1. B responds.

    0
    (x2,1-x2)

    0 Period 3: A offers x3. B responds.

    Economic applications of game theory


    The study of oligopolies (industries containing only

    a few firms) The study of cartels, e.g., OPEC The study of externalities, e.g., using a common resource such as a fishery The study of military strategies The study of international negotiations Bargaining

    Mechanism design
    How to set up a game to achieve a certain outcome? Structure of the game Payoffs Players may have private information Example To design an efficient trade, i.e., an item is sold only when buyer values it as least as seller

    Second-price (or second-bid) auction

    Arrows impossibility theorem No social choice mechanism is desirable

    Akin to algorithms in computer science

    Network example
    C(x) = 1 C(x) = x

    Simple network from s to t with two links Delay (or cost) of transmission is C(x) Total amount of data to be transmitted is 1 Optimal: is sent through lower link Total cost = 3/4 Game theory solution (selfish routing) Each bit will be transmitted using the lower link Not optimal: total cost = 1 Price of anarchy is, therefore, 4/3

    Do high-speed links always help?


    C(x) = x
    C(x) = 1 C(x) = 1 C(x) = x

    C(x) = x

    C(x) = 1

    C(x) = 0 C(x) = 1 C(x) = x

    of the data will take route s-u-t, and s-v-t

    Total delay is 3/2


    Add another zero-delay link from u to v All data will now switch to s-u-v-t route

    Total delay now becomes 2


    Adding the link actually makes situation worse

    Bidding up to 50
    Two-person game Start with a number from 1-4 You can add 1-4 to your opponents number and bid

    that The first person to bid 50 (or more) wins Example

    3, 5, 8, 12, 15, 19, 22, 25, 27, 30, 33, 34, 38, 40, 41, 43, 46, 50

    Game theory tells us that person 2 always has a

    winning strategy

    Bid 5, 10, 15, , 50

    Easy to train a computer to win

    Game programming
    Counting game does not depend on opponents choice

    Tic-tac-toe, chess, etc. depend on opponents moves


    You want a move that has the best chance of winning However, chances of winning depend on opponents

    subsequent moves You choose a move where the worst-case winning chance (opponents best play) is the best: max-min Minmax principle says that this strategy is equal to opponents min-max strategy

    The worse your opponents best move is, the better is your move

    Chess programming
    How to find the max-min move?

    Evaluate all possible scenarios


    For chess, number of such possibilities is enormous Beyond the reach of computers How to even systematically track all such moves? Game tree How to evaluate a move? Are two pawns better than a knight? Heuristics Approximate but reasonable answers Too much deep analysis may lead to defeat

    Conclusions
    Mimics most real-life situations well Solving may not be efficient Applications are in almost all fields

    Big assumption: players being rational

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