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Another use of game theory in managerial economics is in analyzing pricing strategies. For example, firms may use game theory to determine the optimal pricing strategy based on how they expect their competitors to respond to their pricing decisions. Overall, game theory serves as a useful tool for analyzing strategic interactions and decision ...
In game theory and economics, a mechanism is called incentive-compatible (IC) [1]: 415 if every participant can achieve their own best outcome by reporting their true preferences. [ 1 ] : 225 [ 2 ] For example, there is incentive compatibility if high-risk clients are better off in identifying themselves as high-risk to insurance firms , who ...
Risk dominance and payoff dominance are two related refinements of the Nash equilibrium (NE) solution concept in game theory, defined by John Harsanyi and Reinhard Selten.A Nash equilibrium is considered payoff dominant if it is Pareto superior to all other Nash equilibria in the game. 1 When faced with a choice among equilibria, all players would agree on the payoff dominant equilibrium since ...
The free money game is an example of a "special" game with an even number of equilibria. In it, two players have to both vote "yes" rather than "no" to get a reward and the votes are simultaneous. There are two pure-strategy Nash equilibria, (yes, yes) and (no, no), and no mixed strategy equilibria, because the strategy "yes" weakly dominates "no".
This game is a common demonstration in game theory classes. It reveals the significant heterogeneity of behaviour. [11] It is unlikely that many people will play rationally according to the Nash equilibrium. This is because the game has no strictly dominant strategy, so it requires players to consider what others will do.
If x is not an SNE, the condition requires that one can move to a different strategy-profile which is a social-welfare-best-response for all coalitions simultaneously. For example, consider a game with two players, with strategy spaces [1/3, 2] and [3/4, 2], which are clearly compact and convex. The utility functions are: u1(x) = - x1 2 + x2 + 1
A social choice rule is dominant strategy incentive compatible, or strategy-proof, if the associated revelation mechanism has the property that honestly reporting the truth is always a dominant strategy for each agent." [2] However, the payments to agents become large, sacrificing budget neutrality to incentive compatibility.
Equilibrium selection is a concept from game theory which seeks to address reasons for players of a game to select a certain equilibrium over another. The concept is especially relevant in evolutionary game theory, where the different methods of equilibrium selection respond to different ideas of what equilibria will be stable and persistent for one player to play even in the face of ...