The Game theory is the science of strategy. It attempts to determine the mathematically and the logically actions that "players" should take to secure best outcomes for themselves in a wide array of the "games." The games it studies range from the chess to child rearing and from the tennis to takeovers. But games all share common feature of the interdependence. That is, outcome for each participant depends on choices of all. In so-called the zero-sum games interests of players conflict totally, so that the one person's gain always is another's loss. More typical are games with potential for either the mutual gain or mutual harm as well as some clash.
The Game theory was pioneered by the Princeton mathematician john von Neumann. In early years emphasis was on the games of pure conflict. Other games were considered in a supportive form. That is, participants were supposed to choose and the implement their actions jointly. Recent research has focused on the games that are neither zero sum nor purely supportive. In these games players choose their measures separately, but their links to the others involve elements of both the competition and the cooperation.
The Games are fundamentally dissimilar from the decisions made in a neutral environment. To illustrate a point, think of difference between decisions of a lumberjack and those of a general. When lumberjack decides how to chop the wood, he does not expect wood to fight back; his environment is impartial. But when general tries to cut down enemy's army, he must anticipate and overcome the resistance to his tactics. Like general, a game player must know his interaction with the other intelligent and the purposive people. His own choice must allow both for the conflict and for the possibilities for cooperation.
The essence of a game is interdependence of the player strategies. There are two distinct types of the tactical interdependence: simultaneous and sequential. In the former players move in the sequence, each aware of the others' previous actions. In latter the players act at same time, each unaware of others' actions.
The Game theory is concerned with decision-making process in the situations where the outcomes depend upon the choices made by the one or more players. The word "game" is not used in conventional sense but describes any situation involving the positive or negative outcomes determined by players' choices and, in the some cases, chance. In order for the game theory to apply, the certain assumptions must be made. The first is that each player is balanced, acting in his self-interest. In addition, players' choices determine outcome of game, but each player has only the partial control of outcome.
How the Game Theory Works?
The Game theory explores possible outcomes of a situation in which the two or more competing parties look for course of the action that best benefits them. No variables are left to option, so each possible outcome is derived from combinations of simultaneous events by each party.
The Game theory is the best exemplified by a classic theoretical situation called Prisoners' Dilemma. In these circumstances, two people are arrested for mugging a car. They will each supply 2 years in prison for their fault.
The case is air-tight, but police have motive to suspect that two prisoners are also responsible for a current string of the high-profile bank robberies. Here each prisoner is placed in a split cell. Each is told he is suspected of being a bank robber and questioned separately regarding robberies. The prisoners cannot correspond with each other.
Prisoners are told that a) if they both confess to robberies, they'll each serve 3 years for robberies and car theft, and b) if only one confesses to robbery and other does not, one who confesses will be rewarded with a 1 year sentence while other will be punished with a 10 year sentence.
Game Theory Assumptions
1.The players or parties are completely rational.
* The players attempt to maximize their utility.
* The players will accept maximum payoffs.
* The players will only accept the solutions that are at or better than their safety levels.
* The players know the "rules of game."
* The players assume the other parties to be completely rational.
2.The number of players is fixed and known to all the parties.
3.Each party recognizes a set of available options and develops the tangible preferences between those options. The Preferences reside constant throughout conflict or the negotiation interaction.
4.Each party knows or can approximate well options and the preferences of other parties.
5.The communication is highly controlled, limited or not applicable to the conflict or the negotiation interaction.
6.A decision must be possible that is maximally competent, i.e., intersects with solution set at a point that maximizes each party's own interests.
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