Eric Stevanus LA28 2201756600

Eric Stevanus LA28 2201756600
Overview of games and strategic thinking
 Game theory is a way of thinking about strategic situations. One aim of the course is to teach you
some strategic considerations to take into account when making your own choices. A second aim is
to predict how other people or organizations behave when they are in strategic settings.
 Game Theory :Prisoner’s Dilemma
In a Prisoner’s dillema, each actions taken by both players or prisoners in this case will affect the
final result from both actions. But both actions must be made simultaneously, almost seems like
betting. But, by determining the game theory optimal play, we can determine how often or percentage
of play we should throw into a game or what type of actions we should take, wether we should always
cooperate, or perhaps sometimes throw in some defect as well, i order to achieve the maximum output
or profits from the game.
Strategic dominance: Occurs when one strategy is better than another strategy for one player, no
matter how that player’s opponents may play.( Betraying the partner by confessing is the dominant
strategy. It is the better strategy for each player regardless of how the other plays)
Nash equilibrium: The set of players’ strategies for which no player can benefit by changing his or
her strategy, assuming that the other players keep theirs unchanged (Both players choosing betrayal is
the Nash equilibrium of the game However, this outcome is not Pareto-optimal. Both players would
have clearly been better off if they had cooperated)
Pareto optimal: Describing a situation in which the profit of one party cannot be increased without
reducing the profit of another. (However, this outcome is not Pareto-optimal. Both players would
have clearly been better off if they had cooperated.
Cooperation by firms in oligopolies is difficult to achieve because defection is in the best interest
of each individual firm.
Finitely Repeated Games
Repeated games allow for the study of the interaction between immediate gains and long-term incentives.
A finitely repeated game is a game in which the same one-shot stage game is played repeatedly over a
number of discrete time periods, or rounds. Each time period is indexed by 0 < t ≤ T where T is the total
number of periods. A player's final payoff is the sum of their payoffs from each round.
For those repeated games with a fixed and known number of time periods, if the stage game has a unique
Nash equilibrium, then the repeated game has a unique subgame perfect Nash equilibrium strategy profile
of playing the stage game equilibrium in each round. This can be deduced through backward induction.
The unique stage game Nash equilibrium must be played in the last round regardless of what happened in
earlier rounds. Knowing this, players have no incentive to deviate from the unique stage game Nash
equilibrium in the second-to-last round, and so on this logic is applied back to the first round of the game
Infinitely Repeated Games

The most widely studied repeated games are games that are repeated an infinite number of times. In
iterated prisoner's dilemma games, it is found that the preferred strategy is not to play a Nash strategy of
the stage game, but to cooperate and play a socially optimum strategy. An essential part of strategies in
infinitely repeated game is punishing players who deviate from this cooperative strategy. The punishment
may be playing a strategy which leads to reduced payoff to both players for the rest of the game (called a
trigger strategy). A player may normally choose to act selfishly to increase their own reward rather than
play the socially optimum strategy. However, if it is known that the other player is following a trigger
strategy, then the player expects to receive reduced payoffs in the future if they deviate at this stage. An
effective trigger strategy ensures that cooperating has more utility to the player than acting selfishly now
and facing the other player's punishment in the future.
There are many results in theorems which deal with how to achieve and maintain a socially optimal
equilibrium in repeated games. These results are collectively called "Folk Theorems". An important
feature of a repeated game is the way in which a player's preferences may be modeled. There are many
different ways in which a preference relation may be modeled in an infinitely repeated game, but two key
ones are :
 Limit of means
 discount factor
MultiStages Repeated Games

In game theory, a multi-stage game is a sequence of several simultaneous games played one after the
other.This is a generalization of a repeated game. One game to display a multi stages game is “Subgame
Equilibrium”.

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Eric Stevanus LA28 2201756600

Overview of games and strategic thinking

 Game Theory :Prisoner’s Dilemma

Infinitely Repeated Games

MultiStages Repeated Games

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