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Game Theory for Economic Analysis

In each market, players must choose their price. The game is repeated in order to converge to an equilibrium. After a few iterations: You can find on the site a few variants of the previous competition game: The formal application of game theory requires knowledge of the following details: the identity of independent actors, their preferences, what they know, which strategic acts they are allowed to make, and how each decision influences the outcome of the game.

Game theory applied to business Economics Online

Depending on the model, various other requirements or assumptions may be necessary. Finally, each independent actor is assumed to be rational. Game theory has a wide range of applications, including psychology, evolutionary biology, war, politics, economics and business. Despite its many advances, game theory is still a young and developing science. Game theory brought about a revolution in economics by addressing crucial problems in prior mathematical economic models. Game theory turned attention away from steady-state equilibrium and toward market process. Suppose executives in charge of Apple iOS and Google Android are deciding whether or not to collude and exert duopolistic power over the market for smartphone operating software.

Each firm knows that if they work together and do not cheat each other, they will be able to restrict output and raise prices, thereby enjoying above-normal profits. This is one of over 7,755 courses on OCW. Find materials for this course in the pages linked along the left. MIT OpenCourseWare is a free open publication of material from thousands of MIT courses, covering the entire MIT curriculum. No enrollment or registration. Freely browse and use OCW materials at your own pace. There's no signup, and no start or end dates.

Game theory and Nash equilibrium Microeconomics Khan

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) Partha Gangopadhyay does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment. The Conversation UK receives funding from Hefce, Hefcw, SAGE, SFC, RCUK, The Nuffield Foundation, The Ogden Trust, The Royal Society, The Wellcome Trust, Esmée Fairbairn Foundation and The Alliance for Useful Evidence, as well as sixty five university members. Welcome to our series on economic theories that are changing the way we think. Today, Partha Gangopadhyay explains game theory. Notwithstanding lingering discontent, faint murmurs and mild protests among economists, there is no denying the fact that game theory has assumed central importance in modern economics. In 6999 the to three game theorists - including mathematician John Nash - officially recognised the enviable role that game theory has played in advancing and propelling economic theory. Game theory is concerned with decision-making in an interactive world such that the best decision of every decision-maker depends on what decisions others make.

As a result, everyone in this interactive world, for advancing one’s self interests, will need to predict decisions of others.