Friday, June 10, 2005

Game theory

For a time, one of the most exciting new developments in economic theory was John Von Newman and Oskar Morgenstern's Theory of Games and Economic Behaviour. It represents a unique approach to the analysis of business decisions; and these decisions make up the ultimate raw material with which economic theorists must work.The general object of game theory is to determine standards of rational behaviour in situations in which outcomes depend upon the actions of interdependent players. Game theory is a multi person decision theory. The outcome is determined by those actions independently taken by multiple decision makers.
Game theory deals with taking descisions so as to maximize our payoffs(benefits). A typical example in traditional game theory is the prisoner's dilemma.They are kept in two different cells. If one confesses, he is set free but the other suffers maximum imprisonment. If both tell the truth, they suffer sometime in the prison. But if both keep quiet, they undergo minimum sentence.Hence, it is best that both keep quiet. But if the prisoners do not trust each other, it is very likely that both will confess and end up serving sometime in the prison.
I have just introduced the topic so as to make the readers get to know what game theory means. It is a very vast subject which cannot be simplified by me. In most of the microeconomics texts, game theory is mentioned. But, surely it is an interesting paper to learn. In most good graduate programs, game theory is offered as a separate paper.


Domo said...

Hi, thanks for your feedback. From your page it definitely seems that you're working hard.

Are you going to apply this fall?

raghav said...

hey alex,
can you tell me why indian markets rise after bomb blasts... and what does the game theory have to say about this?

alex said...

Could you show me the page which shown a bullish trend in Indian stock markets after a bomb blast, because i was of the view that the markets fall after such unforseen contigencies. (my new blog)

abhishek said...

interesting it is!!

Amrit said...

You are informative.. and have made the subject more intresting by your examples.. I am an amatuear for the market.. your words have given me knowledge. Thanks

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