The game theory provides an appropriate solution of a problem if its conditions are properly satisfied. These conditions are often termed as the assumptions of the game theory. Among the aforementioned assumptions, the last two assumptions make the application of the game theory confined in real world.
Game theory is based on the concept of strategy and payoffs. Strategy indicates an action that a player takes when challenged to solve a particular problem. On the other hand, payoff refers to the outcome of the strategy applied by the player. For example, two friends are playing coin flipping game. In this game, one friend tosses the coin, and the other friend calls for head or tail. However, in other games, the payoff may depend on more than one player.
Let us understand the tabular representation of payoff and strategies adopted in a game with the help of an example. If you have already studied the operation research notes, then its time to move ahead and go through previous year operation research question paper. It will help you to understand question paper pattern and type of operation research questions and answers asked in MBA, BBA, BCom operation research exam.
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Recently, Cloudflare, Inc. From a technical standpoint, high-volume sell-offs do not fare well. Shares of the biotech stocks are getting hit hard after the ruling blocked President Biden's mandate. A node is a decision point. The beginning point is depicted by an open dot, which usually represents a state from which a situation will arise by chance. Decision points are labeled with the name of the player making the decision.
The following diagram shows the structure of an extensive-form game representation. Structure of an Extensive Form Game Chance nodes can appear anywhere in the extensive form tree.
An information set is a collection of nodes that are controlled by the same player, but which are indistinguishable for that player. If a single dotted line encompassed all the Player 2 decision nodes or 4 dotted circles all connected , then Player 2 would not be able to distinguish between any of the four decisions.
An extensive form game without information sets designated is one in which the players know exactly where they are in the tree. This situation is equivalent to one of dotted circles drawn around each decision point in the tree but not connected to one another.
If neither player can observe anything about the other player's action, the sequential extensive form game can be reduced to the simultaneous-action bimatrix game. Normal-Form Strategic Form Game Representation The extensive form of representing a game can become difficult to manage as the game gets larger, and the Nash equilibria may become difficult to find. The extensive form representation can be collapsed into the normal form, which encodes the game into a strategy that describes the action to take for each conceivable situation for example, for each information set.
The normal form is a complete listing of all the possible strategies along with their payoffs. For example, if there exists danger of a price war, a smaller firm may sell a plant in order to reduce capacity and limit the amount of a larger firm's demand that it can steal, signaling that it does not intend to build substantial market share.
As another example, a sports player who for some reason refuses to undergo an medical exam before negotiating his salary will raise doubts as to whether he has a medical condition that might affect his performance.
This player might wish to signal that he does not have such a condition by proposing that his pay be tied to his performance. For a signal to be effective, its cost to a bluffer must exceed the benefits. A threat is credible if it is believable.
A threat is believable if it is in the best interest of the one making the threat to carry it out. Auctions Game theory can be used to analyze strategies for auctions. Legal Issues One must consider that just because a possible action of one's opponent is illegal, this technicality might not prevent the action from being taken.
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