Behavioral Game Theory: Experiments in Strategic Interaction - Essay Example

? Macro & Micro Economics By Macro & Micro Economics Game theory refers to the study of the outcomes from strategic interactions among agents in the economic sectors. These outcomes come out with respect to the preferences or utilities of the said agents. As such, the questionable outcomes might not necessarily arise from the suggestions made by these agents participating in the simulation (Camerer 2011 pg. 26). This makes the study of game theory as strategic point in decision making whereby it incorporates the study of mathematical models of cooperation and conflict between the intelligent, as well as rational decision makers. 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’ cards and movements during the game (McCain 2010 pg. 19). For instance, if one wants to test for the Nash equilibrium, then they have to reveals the strategy of each player, or the adopted strategy that each player in the game will undertake, hence making it easier for the game to proceed by revealing the strategies adopted by all the players in the game theory. The Nash equilibrium exists when there are no players who change their strategies in approaching the game despite their prior knowledge over the perceived actions of their opponents. For instance, taking n example of a game that ensues between Jennifer and Joan. This is a simple game whereby both the players may decide on an alternative of two options, such as A) receive $ 1, or B) lose $ 1 (Nicholson & Snyder 2009 pg. 123). The game theory applies the Nash equilibrium as a solution concept whereby the players end up in a non-cooperative game that involves two or more players. In this game, each of the players assumedly has prior knowledge of the strategies of equilibrium of all the other players participating in the game. In addition, none of the players stands to gain anything through undertaking a change in their personal equilibrium strategies (McCain 2010 pg. 168). Nash equilibrium constitutes whenever each of the players in a game chooses a strategy and thereby arises a situation whereby the players cannot benefit from the changing strategies during the game whilst others maintain their strategies unchanged and particular to the game. This later leads to the formation of a current set of choices in strategies that may lead to a corresponding payoff (Nicholson & Snyder 2009 pg. 89). In a good example of the application of several aspects of the game in relation to the Nash equilibrium, we undertake a study by analyzing an example whereby Amy and Willis come to Nash equilibrium. This situation is only possible if Amy decides to make the best decision that he can make taking into consideration the decision made by Willis (Myerson 2013 pg.8). On the other hand, Willis also makes the best decision he may come up with by taking into account the decision made by Amy. Similarly, in a group of players in a game theory, these players come to a Nash equilibrium if a situation arises whereby each of the players makes the best decision that they can come up with in the game by taking into consideration the decisions made by others. As such, the only way for these characters to come to a conclusive solution is by adopting decisions that are optimal to all the concerned stakeholders, such that they would benefit all the members or players in the game without necessarily affecting the position taken by others (Harris, F., Mcguigan & Mover 2007 pg. 224). As such, a game theory in the light of Nash Equilibrium would involve every player taking upon him or herself the right decision in order to come up with the best possible answers for the applications in a company. The game theory is paramount in setting up decisions that affect the management and productivity of a company (Damme 1983 pg. 32). These decisions play a very vital role in determining how well the organization works towards ensuring that they come up with the right decisions. As such, it becomes imperative for these aspects to come together and constitute the best decisions for the business (Nicholson & Snyder 2009 pg. 46). In this case, the right decisions to take depends on the way each party involved in the decision making process undertakes their jurisdictions. For instance, in an organizational perspective, the players in a game theory may be the several departments and divisions that comprise an organization. As such, each of these divisions has to come up with the best practices that would ensure each an overall turnaround in the practices and decisions of the company. In addition each of these practice should also involve the management of other practices in concern of others already taking part in the Nash equilibrium (Gibbons 1992 pg. 88). Consequently, a failure in the taking of right decisions in the game theory also causes a poor strategy as adopted in the decision making process of the company. The main aspect of this process bases on the assumptions that these companies and organizations have to take in consideration of Nash equilibrium in the management of business practices (Zaagare 1984 pg. 243). One of the formidable means of undertaking this concept in a game theory is assuming that all the players in the game adopt a strategy that is similar to one another. Furthermore, they should also ensure that the chosen strategies also have the best outcomes for all the involved players in the game (Damme 1983 pg. 132). As such, for instance, a player who is aware of all this strategies of other players in the game would undertake a decision rule in managing the right practices and policies in making all these factors come to a conclusive mutual benefit and closure, which normally occurs at the Nash equilibrium (Damme 1991 pg. 256). As such, in order to have the best strategies in decision making by the use of Nash equilibrium and game theory, the best strategies include determination of plausible rights and merits for the adoption and evaluation of all the possible strategies that a business can undertake (Weibull 1997 pg. 45). This in turn makes it necessary for the business analysts to consider all the aspects of decision-making and as such, come up with conclusive results at the end of the day – whereby all the factors are similar, and a change in strategies of one individual does not affect the outcomes of a game (Carmona 2013 pg. 67-9). Reference List Camerer, C., 2011, Behavioral Game Theory: Experiments in Strategic Interaction, Princeton University Press, Princeton. Carmona, G., 2013, Existence and Stability of Nash Equilibrium, World Scientific, Singapore. Damme, E., 1983, Refinements of the Nash Equilibrium Concept, Springer-Verlag, New York. Damme, E., 1991, Stability and Perfection of Nash Equilibria, Springer, New York. Gibbons, R., 1992, Game Theory For Applied Economists, Princeton University Press, Princeton. Harris, F., Mcguigan J. & Mover, R., 2007, Managerial Economics: Applications, Strategies, and Tactics, Cengage Learning, Stamford Connecticut. Hirschey, M., 2008, Fundamentals of Managerial Economics, Cengage Learning, Stamford, Connecticut. McCain, R., 2010, Game Theory: A Nontechnical Introduction to the Analysis of Strategy, World Scientific, Singapore. Myerson, R., 2013, Game Theory, Harvard University Press, Harvard Nicholson, W. & Snyder, C., 2009, Intermediate Microeconomics and Its Application, Cengage Learning, Stamford, Connecticut Nicholson, W. & Snyder, C., 2012, Microeconomic Theory: Basic Principles and Extensions, 11th Ed.: Basic Principles and Extensions, Cengage Learning, Stamford, Connecticut. Peters, H., 2008, Game Theory: A Multi-Leveled Approach, Springer, New York. Tieben, B., 2012, The Concept Of Equilibrium In Different Economic Traditions: An Historical Investigation, Edward Elgar Publishing, Cheltenham. Weibull, J., 1997, Evolutionary Game Theory, MIT Press, MA. Zaagare, F., 1984, Game Theory: Concepts and Applications, Issue 41, Sage Publications, London. Read More