Game Theory In Daily Life

Lei WangYuxi WengXueying Liu

Game theory :

Game theory is the study of strategic decision making. Specifically, it is "the study of mathematical models of conflict and cooperation between intelligent rational decision-makers.

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Examle 1

We'll use the most famous of all games: the Prisoner's Dilemma. Suppose that the police have arrested two people whom they know have committed an robbery together. Unfortunately, they lack enough evidence to get a jury to convict. However, They have enough evidence to send each prisoner away for two years for theft of the getaway car. The chief inspector now makes the following offer to each prisoner: If you confess to the robbery, and he doesn’t confess, then you'll go free and he'll get ten years in prison. If you both confess, you'll each get 5 years in prison. If neither of you confess, then you'll each get 2 years for the car theft.

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Examle 1

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Examle 1

Wherever one action for a player is superior to her other actions for each possible action by the opponent, we say that the first action strictly dominates the second one.

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Examle 1

In the Prisoner’s Dilemma, then, confessing strictly dominates refusing for both players. Thus the best conclusion is both players will confess, and both will go to prison for 5 years.

Competition Motel in

Telecommunications

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Example 2

A(China Telecom) is established enterprises, its power is abundant, occupies the overwhelming majority of the market share. B(China Unicom) has just set up soon, and they are not as powerful as China Unicom, which is set up by government to break monopoly and encourage competition.

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Example 2

A’s profit

B’s profit

Profit in all

A↓ B -- +15 -5 +10

A -- B-- +5 +10 +15

A --B↓ -10 +15 +5

A↓B↓ -5 -5 -10

Summery:

Now, Game Theory has become one of the basic analysis tools in economics. It applies to a wide range of behavioral relations and has developed into an umbrella term for the logical side of decision science, including biology, economics, international relations, computer science, political science and so many other subjects.

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