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Assess the practical usefulness and the relevance of game theory in light of the demanding assumptions behind the concept of the - Essay Example

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Macro & Micro Economics By Code+ University Name Macro & Micro Economics Game theory refers to the study of the outcomes from strategic interactions among agents in the economic sectors…
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Download file to see previous pages This theory is also known as the interactive decision theory, as such being in a more descriptive manner of the theory as regards to its discipline of administration (Tieben 2012). Economists are the main users of game theory in the establishment of results and determination of outcomes from specific business ideas. In addition, the game theory is also paramount in other sectors such as in political science, in biology, in logic, as well as, in psychology (Nicholson & Snyder 2012 pg. 345) The original idea and concept covered by game theory in the early days of its inception was the addressing of zero-sum games. In these games, the gains of an individual or a person were exactly the equal net losses of the other participants in the simulation theory. Nonetheless; with the development of the modern society and civilization, the game theory concepts developed further to incorporate and apply a wide range of behavioral (Peters 2008 pg. 109). In fact, game theory developed into an umbrella term to refer to or explain the logical side of the science decision. This includes the collection of both humans as well as the non-humans involved in the system, such as the computers (McCain 2010 pg. 189) The modern game theory resulted from the idea that regarded the existence of mixed strategy equilibrium, especially in the two-person zero-sum games, as proved by John Newman. The original proof used by Newman in the development of the game theory was the brouwer’s fixed-point theorem that incorporated continuous mapping into compact convex sets that were standardized through the game theory method as well as the usage of mathematical economics (Hirschey 2008 pg. 208). As such, game theory became an important aspect in the determination of measurable tendencies, as well as, constraints that affect the plausibility of decision making, in addition to determining the right amount of efforts to put into a simulation game in order to guarantee flexible results for the company. This also leads to effective production and management of the company especially considering the right amounts of resources necessary to input into the game, and as such gain the maximum output (McCain 2010 pg. 227). The game theory works closely with the Nash equilibrium. This is especially in the sense that the Nash equilibrium comes around as the concept of game theory that allows derivation of optimal outcomes in the game. This considers the case whereby a game involves the lack of incentives in the players of a game, such as an incentive to deviate from the original chosen strategy after considering the choice made by the opponents. As such, an individual playing the game theory can receive little or no incremental benefits from the changing actions. This also assumes the fact that other players remain at a constant position with their strategies. As such, a game may have a multiple numbers of Nash equilibrium or none at all (Hirschey 2008 pg. 245). The Nash equilibrium is a concept that originated from an inventor known as John Nash, who incorporated this theory into a number of disciplines, ranging in a wide range of perspectives, such as the behavioral ecology to economics. The use of the Nash equilibrium is very simple as it entails application of simple procedures by undertaking all the players’ ...Download file to see next pagesRead More
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