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game theory

the fisherman of halicarnassus · 2022-12-15T18:45:17.819891-08:00

game theory is a branch of economics and mathematics that studies strategic decision-making. it is based on the idea that people and organizations often make decisions by considering how their actions will affect the actions of others. in game theory, a "game" is a situation in which two or more individuals or groups (called "players") make decisions that simultaneously affect each other's outcomes. these decisions are often modeled as "strategies," and the outcomes of the game are determined by the combination of strategies chosen by the players. an example of a game in game theory is the "prisoner's dilemma." in this game, two suspects are arrested by the police and held in separate cells. each suspect is given the option to confess or remain silent. if both suspects remain silent, they will each receive a small punishment. if one suspect confesses and the other remains silent, the confessing suspect will go free while the silent suspect will receive a severe punishment. if both suspects confess, they will both receive a moderate punishment. in this game, each suspect must decide whether to confess or remain silent, without knowing what the other suspect will do. the outcome for each suspect depends on the combination of strategies chosen by both suspects. if both suspects remain silent, it is the best outcome for both of them. however, if one suspect confesses and the other remains silent, the confessing suspect will go free while the silent suspect will receive a severe punishment. therefore, each suspect has an incentive to confess, even though confessing is not the best outcome for either of them. this game illustrates how individuals may make decisions that are not in their own best interests when they are interacting with others and trying to anticipate the actions of their opponents. game theory is used to analyze and understand situations like these, and to make predictions about how people and organizations will behave in strategic situations.

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