Information set: The information set refers to the information available to a player at a given point during the game. Players: Players are the decision-makers within a game. Strategy: Strategy can be defined as a plan of action that a player might take, based on the circumstances of the game. It also includes how these strategies impact the overall game. This game includes the identities of players and their strategies. Game: A game can be defined as any set of situations that have occurred due to the actions of players. Neumann and Morgenstern described the terms or components involved in game theory in their book, ‘The theory of games and economic behaviour.’ They are all part of the same party as they are selling the same product through different mediums. All these marketing options are players and the incentive they receive according to their work is their reward. They use Facebook marketing, email marketing and Instagram marketing to advertise their product. People who do not contribute at all, do not receive gains.įor example, a company wants to market their product. Equal contributors get equal pay or gains. ![]() This concept works in cases where the contribution of players is unequal but they are working cooperatively to achieve the rewards or gains. It is a solution to a game and involves distributing gains or rewards equally among players of a team or group. Shapley value is another concept used in game theory. All members of the game are satisfied with their plan of action hence an equilibrium is achieved.įor example, when a tie is achieved in the game and the scores of both parties are the same, equilibrium seems to have occurred. As the player knows the opponent’s strategy here, he/she will not change course, as there is no incentive or prize to change. It means that a player should stick to their chosen strategy even after knowing the other player’s strategy or plan.Īfter this equilibrium is applied, the player cannot change his/her strategy. This strategy does not allow any member to change their plan of action after knowing other players’ plans. It refers to a set of strategies that each player has. ![]() ![]() Mathematician John Nash further expanded the work of Neumann and Morgenstern. They noticed that economics is much like a game, wherein players wait for each other’s moves, so it requires a new kind of mathematics, which they called game theory. They admitted that the mathematics developed for the physical sciences was not fit for economics. The basis of this theory was to solve the problems of economics. Mathematician John von Neumann and Economist Oskar Morgenstern introduced the theory in the 1940s. Since these decisions can be interrelated, the players have to consider each other’s possible decisions or strategies. It is also known as a science of strategy or a branch of mathematics that includes techniques to evaluate situations in which players make decisions that are related to each other. Game theory refers to a theoretical framework for creating social situations among different sets of players.
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