I. Introduction to Game Theory
Originally the theory of games was developed to look at games, applying to games such as chess, checkers, and tic-tac-toe (Owen, 2013). Game theory has not become a standard language in economics and other social sciences but this branch of study was original developed in 1944 by John von Neumann and Oskar Morgenstern. It wasn’t until a few years later that a solution was proposed as to how rationale players would interact. John Nash proposed that players would adjusted their strategies until no player could benefit from changing and reach what has been coined the “Nash Equilibrium.” The equilibrium will leave the players at their best possible response to all other players responses (Camerer, 2003; University …show more content…
Current day critics of game theory still have many reasons to questions its validity and application in real world situations. The first, and most important critic, is that game theory has very little empirical content and therefore it is very hard to test its validity or the extent to which people will be rational in certain context (Hausman, 2005). Other critics point out that most current models assume that people will only pursue their own self-interest but psychological evidence strongly indicates that people do not always act in their own self-interest. This is especially true when they see others being kind or generous or in an effort to punish others who are being unkind (Rabin, 1993). These many current and past critics have led some to question whether game theory has been refuted and is therefore no longer a viable field of study (Guala, …show more content…
Cooperative games are those where players can make binding agreement with each other and value is added by this cooperation but in noncooperative games, cooperation is impossible to implement or will not have any positive benefit for the individuals (Chalkiadakis, Elkind, & Wooldridge, 2012). A symmetric game is one where the payoffs for playing a particular strategy depend only on the other strategies employed, not on who is playing those strategies. An asymmetric game is one where the identity of the players change the payoffs for each strategy (Schmidt, 2003; Stahl, 1999). A zero-sum game is one where the gains of one player come at the expenses of an exact loss to the other player, whereas in a non-zero-sum game the gains or losses of one player do not cause any gains or losses of the other player (Salvator, 2015). The difference between simultaneous and sequential games is the knowledge of the later players. In a simultaneous game the players either move at the same time or the alter player is not aware of the earlier player’s action. Sequential games on the other hand, are those which the later players have complete knowledge about the earlier player’s action (Bag & Roy, 2011; Seigrist & Steele, 2001; Fershtman,
Originally the theory of games was developed to look at games, applying to games such as chess, checkers, and tic-tac-toe (Owen, 2013). Game theory has not become a standard language in economics and other social sciences but this branch of study was original developed in 1944 by John von Neumann and Oskar Morgenstern. It wasn’t until a few years later that a solution was proposed as to how rationale players would interact. John Nash proposed that players would adjusted their strategies until no player could benefit from changing and reach what has been coined the “Nash Equilibrium.” The equilibrium will leave the players at their best possible response to all other players responses (Camerer, 2003; University …show more content…
Current day critics of game theory still have many reasons to questions its validity and application in real world situations. The first, and most important critic, is that game theory has very little empirical content and therefore it is very hard to test its validity or the extent to which people will be rational in certain context (Hausman, 2005). Other critics point out that most current models assume that people will only pursue their own self-interest but psychological evidence strongly indicates that people do not always act in their own self-interest. This is especially true when they see others being kind or generous or in an effort to punish others who are being unkind (Rabin, 1993). These many current and past critics have led some to question whether game theory has been refuted and is therefore no longer a viable field of study (Guala, …show more content…
Cooperative games are those where players can make binding agreement with each other and value is added by this cooperation but in noncooperative games, cooperation is impossible to implement or will not have any positive benefit for the individuals (Chalkiadakis, Elkind, & Wooldridge, 2012). A symmetric game is one where the payoffs for playing a particular strategy depend only on the other strategies employed, not on who is playing those strategies. An asymmetric game is one where the identity of the players change the payoffs for each strategy (Schmidt, 2003; Stahl, 1999). A zero-sum game is one where the gains of one player come at the expenses of an exact loss to the other player, whereas in a non-zero-sum game the gains or losses of one player do not cause any gains or losses of the other player (Salvator, 2015). The difference between simultaneous and sequential games is the knowledge of the later players. In a simultaneous game the players either move at the same time or the alter player is not aware of the earlier player’s action. Sequential games on the other hand, are those which the later players have complete knowledge about the earlier player’s action (Bag & Roy, 2011; Seigrist & Steele, 2001; Fershtman,