Lecture

Game Theory: Decision Making in Interdependent Environments

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MGT-454: Principles of microeconomics

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Description

This lecture introduces the concept of game theory, focusing on decision-making in interdependent environments. It covers the definition of game situations, types of environments (certain, random, interdependent), and the value of information. The lecture explores strategic decision-making, equilibrium concepts (dominant, Nash), and their economic applications in management and interpersonal relationships.

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Related concepts (32)

Nash equilibrium

In game theory, the Nash equilibrium, named after the mathematician John Nash, is the most common way to define the solution of a non-cooperative game involving two or more players. In a Nash equilibrium, each player is assumed to know the equilibrium strategies of the other players, and no one has anything to gain by changing only one's own strategy. The principle of Nash equilibrium dates back to the time of Cournot, who in 1838 applied it to competing firms choosing outputs.

Economic equilibrium

In economics, economic equilibrium is a situation in which economic forces such as supply and demand are balanced and in the absence of external influences the (equilibrium) values of economic variables will not change. For example, in the standard text perfect competition, equilibrium occurs at the point at which quantity demanded and quantity supplied are equal. Market equilibrium in this case is a condition where a market price is established through competition such that the amount of goods or services sought by buyers is equal to the amount of goods or services produced by sellers.

Game

A game is a structured form of play, usually undertaken for entertainment or fun, and sometimes used as an educational tool. Many games are also considered to be work (such as professional players of spectator sports or games) or art (such as jigsaw puzzles or games involving an artistic layout such as Mahjong, solitaire, or some video games). Games are sometimes played purely for enjoyment, sometimes for achievement or reward as well. They can be played alone, in teams, or online; by amateurs or by professionals.

Game mechanics

In tabletop games and video games, game mechanics are the rules or ludemes that govern and guide the player's actions, as well as the game's response to them. A rule is an instruction on how to play, a ludeme is an element of play like the L-shaped move of the knight in chess. A game's mechanics thus effectively specify how the game will work for the people who play it. There are no accepted definitions of game mechanics.

Game theory

Game theory is the study of mathematical models of strategic interactions among rational agents. It has applications in all fields of social science, as well as in logic, systems science and computer science. The concepts of game theory are used extensively in economics as well. The traditional methods of game theory addressed two-person zero-sum games, in which each participant's gains or losses are exactly balanced by the losses and gains of other participants.

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