Game Theory

2 Pages 499 Words

Game Theory

The first evidence of the game theory can be found in the Talmud concerning the dividing of estates. The game theory wasn’t around then but in 1985 it was recognized. Significant contributions came from John von Neumann in 1928 when he proved the min/max theory, and then again when von Neumann and Oskar Morgenstern published Theory of Games and Economic Behavior. John Nash Jr. published four papers between 1950 and 1953, which contributed to the non-cooperative game theory and to the bargaining theory. In 1994 Nash, John C. Harsanyi, and Reinhard Selten won the Nobel Prize in economics for “their pioneering analysis of equilibria in the theory of non-cooperative games.

The game theory is a branch of mathematics that analysis decision making in conflict situations. These situations exist when two or more decision makers, who have different objectives, have to act on the same system, or share the same resources. The game theory provides a mathematical process for finding the optimum strategy, against an opponent who has their own strategy. The game theory makes the following assumptions
“1. Each decision maker [“PLAYER”] has available to him two or more well-specified choices or sequence of choices (called “PLAYS”).
2. Every possible combination of plays available to the players leads to a well-defined end-state (win, loss, or draw) that terminates the game.
3. A specified payoff for each player is associated with each end-state (a [ZERO-SUM game] means that the sum of payoffs to all players is zero in each end-state).
4. Each decision maker has perfect knowledge of the game and of his opposition; that is, he knows in full detail the rules of the game as well as the payoffs of all the other players.
5. All decision makers are rational; that is, each player, given two alternatives, will select the one that yields him the greater payoff.

The last two assumptions, in particular, restrict the ...