Business: Nash Equilibrium and Game Theory Essay

Submitted By junjiejunshidamengme
Words: 479
Pages: 2

Game theory is a major method used in mathematical economics and business for modeling competing behaviors of interacting agents. This research usually focuses on particular sets of strategies known as equilibria in games. These "solution concepts" are usually based on what is required by norms of rationality

Game theory is a probabilistic model which has already mentioned is used in analysing, and driving rules for making decisions when two or more people are competing for some objectives. Game theory attempts to look at the relationships between participants in a particular model and predict their optimal decisions (Investopedia 2010). According to Wikipedia (2010), economists and business professors suggest two primary use of game theory: descriptive and prescriptive. In the descriptive use, game theory has been used to study a wide variety of human and animal behaviours; thus when finding the equilibrium of games we can predict how actual human prediction can be understood. One frequently cited example of descriptive use of game theory is the Nash equilibrium (see Investopedia 2010; Stanford Encyclopedia 2010). In the prescriptive (normative) use, game theory has also been used to attempt to develop theories of ethical or normative behaviour. That is an attempt to look economic and human practices as they ought to be, talking about judgment and looking at what is right and what is wrong. One frequently cited example of descriptive use of game theory is the prisoner’s dilemma (see Investopedia 2010; Stanford Encyclopedia 2010). Game theory bridges mathematics, statistics, economics, and psychology to model conflict between two or more rational decision-makers

2.2.3 Strengths and Weaknesses of Game Theory Strengths Game Theory
(1) Game theory is a model type, which are generally explicit and unambiguous in nature.
For this reason, solution to game theory are easy to criticize or subscribe to.
(2) Game theory as model if applied