Game theory is the study of math and logic behind problems and cooperation. It has logical steps that can be used in making life choices. In game theory, a dominant strategy of Nash equilibrium exist. Nash equilibrium is reach when players choose their own dominant strategy in no unilateral profitable deviation from any other players. In addition, no players would take action as long as other players remain the same. Therefore, Nash equilibrium is self-enforcing strategy.
in-game theory, a dominant strategy Nash equilibrium exists.
As a theory derived from mathematics, of course game theory is also closely related to non-social sciences such as computer science, electronics, to physics. While from the standpoint of social science, it can be said that game theory seeks to explain human interactions and behavior (social science) from the rational side. In economics, the game theory explains business behavior, for example in marketing competition between two or several large companies that dominate the market (cartel).
Dominant strategy
In the dominant strategy, each player has 1 optimal choice that is not dependent on the choice of other players. In this case, A will always choose "bottom" because rewards 2 ("bottom" - "left") or 1 ("bottom" - "right") are never worse than 1 ("top" - "left") or 0 ("top" - "right"). Likewise, for B, choosing "left" will never be worse than choosing "right", regardless of choice A. Thus, "down" and "left" are the dominant strategies for each player A and B.
Nash Balance (Nash Equilibrium)
When a dominant strategy does not occur, a balance can still be achieved if each player can choose optimally based on the expectations of the actions taken by other players. In the above situation, if player A chooses "top", the optimal choice for B is "left". Conversely, if B chooses "left", optimal choice A is "top". Thus, the "top" - "left" (yellow cell) is also a position of balance, which is called the Nash balance (Nash equilibrium). Thus, Nash's balance is a pair of strategies when choice A is the optimal choice for the condition of choice B, and vice versa.
The prisoner's dilemma
Another problem in Nash's balance is that if an equilibrium position is reached, the two parties make a choice that is not the most optimal. This condition is known as the prisoner's dilemma. We imagine, there are 2 prisoners (suspects) who were investigated separately without being able to guess at each other's choice of action.
There are still many variations of strategies in game theory and their assumptions that were not explained here. The real game theory application is very close to daily life. Have you ever faced situations such as prisoners' dilemmas or other strategic interactions? Could there be a way of taking a solution that hasn't been conceived by game theory formulators until now?
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Details
Class: College
Subject: Business
Keyword: Nash, Theory, Equilibrium
