Game Theory is a set of tools for studying strategic behavior, behavior that takes into account expected
behavior of others and the recognition of mutual interdependence. Invented by John Von Neumann.
Used to understand oligopolies, politics, biology, sociology, and more.
A Game has 4 components. (1) Rules (2) Strategies (3) Payoffs (4) Outcomes
Use a payoff matrix to map outcomes or actions players take.
The Nash Equilibrium states player A takes the best possible action given the action of player B, and
player B takes the best possible action given the action of player A.
In price fixing where strategy is complying or cheating, the four possible outcomes are (1) Both firms
comply (2) Both firms cheat (3) Firm A complies and Firm B cheats (4) Firm A cheats and Firm B complies
According to the Nash Equilibrium, both Firms will Cheat
behavior of others and the recognition of mutual interdependence. Invented by John Von Neumann.
Used to understand oligopolies, politics, biology, sociology, and more.
A Game has 4 components. (1) Rules (2) Strategies (3) Payoffs (4) Outcomes
Use a payoff matrix to map outcomes or actions players take.
The Nash Equilibrium states player A takes the best possible action given the action of player B, and
player B takes the best possible action given the action of player A.
In price fixing where strategy is complying or cheating, the four possible outcomes are (1) Both firms
comply (2) Both firms cheat (3) Firm A complies and Firm B cheats (4) Firm A cheats and Firm B complies
According to the Nash Equilibrium, both Firms will Cheat
