Question

Describe a business example of a one-shot game and a repeated game. How does game theory help us in these situations?

Answer 1

Page 1 Game theory is a theoretical framework for conceiving social situations among competing players. In some respects, game theorey is the science of strategy, or at least the optimal de cilion - Making of independent and Competing actores in a strategic setting. The key pioneers of game theorey were mathematicions John von Neumann and John Nash, as well as economist Oskare more gensteren. C Game theorey is the study of mathematical model of streategic interaction among reational decision. makerel. It has applications in all fields of social science, as well as in logic, system science, and computer science. Originally it addreened zero-sum games, in which each participants gains one loves are exactly balanced by thall of the other participante. Today game theory applies to a wide reange of behaviore of relations, and is now an umbrella terem fore the science of logical decision making in humans, animals and computers. In one shot game, the mixed strategy for a player is taught as a distribution over startegy space fore the player. The distribution esentially gives us the probabilities with which a plogere should play the startegies in a Nath equilibrium. Howevere probabilities carry the notion of being frequencies and mean fraction of thell ellentially the long-reeen games in which the players should play the strategy. is a the letting However and game one-shot this is a contradiction.

page-2 This is a game that is played only once, the play off may be such that a game might be imposible to Play twice, E.g. mutually auureed nuclear derleuchon slightly different with tachial / conventional warface, 'In one shot interaction, people offen have an incentive to be have opportunistically / selfiehly. Considere a one Shot prisonerd' Dilemma game where an indivitual wants to minimize their own sentence. - In a game theory, a repeated games is an exteneive forem game that consiste of a number of repetitions of lome bare game. The stage game in werally one of the well-studied two perceon games. Rereated games capture the idea that a playere will have to take into account the impact of his one her current action, on the future actions of Other players, this impacts in cometimes called his on her reputation. Single stage game ore eingle shot game are names fore non-repeated games. A very common feature of applied busines-e.g. decision on, pricing (Established supermarkets versus the deep Did Counters) The size of marketing budgets, Research and developement spend, capital investment and supply capacity force casts, with repeated games there is more scope fore co- operative strategies to emerge. Credible threat power history of past behaviours. - Repeated games- a crucial point is the reaction to a defective stare tegy by another Playere, Tit fort tot streategy - if you defect, I

page-3 defect in the next round. Grim streategy - if you defect, I will defect in all future rounds. Economist often wre game theory to understand oligopoly firem behavion. It helps to predict likely outcomes when firms engage in Ceretan behaviors, such as price-fixing and collucion. Twenty game theoreidte have been awarded the Nobel momorial prize in economic sciences fore theire Contreibutions to the discipline - Game theorey is ideal fore strategic situations where Competitine ore individual behavirer can be modeled.