Introduction to Game Theory Essay Example for Free

Introduction to Game Theory Essay Nobel Prize Citation, 1994: Game theory is a mathematical method for analysing strategic interaction. Problem What is strategic interaction? (Singapore Management University) Introduction to Game Theory Fall 2012 2 / 18 An Example of a Game | Flat Tire Two SMU students, Al and Bob, very con dent about their midterm exam performance in ECON 206, decided to attend a party the weekend before the nal exam. The party was so good that they overslept the whole Sunday. Instead of taking the nal unprepared on Monday, they pleaded the professor to give them a make-up exam. Their excuse was a at tire without a spare and any help. The professor, surprisingly, agreed. On Tuesday morning, the professor placed them in separated rooms and handed them the test. The test had just one question: Which tire? (Singapore Management University) Introduction to Game Theory Fall 2012 3 / 18 The GPA Rat Race All of you are now enrolled in ECON 206 that will be graded on a curve. No matter how well you do in absolute terms, only 33. 3% of the students will get As, and only 33. 3% of the students will get Bs. Therefore, you must work hard, not just in absolute terms, but relative to how hard your classmates work. All of you are smart enough to recognize this, and after the rst lecture you all hold a secrete meeting where all of you agree not to work too hard. What will happen in the end? (Singapore Management University) Introduction to Game Theory Fall 2012 4 / 18 Why Are Professors So Mean? Many professors have rigid rules not to give makeup exams and NEVER to accept late homework assignments. Students might think the professors are so hardhearted to behave in this way. The truth is. Most professors are actually very kindhearted (for example. ) They are willing to give their students every reasonable break and accept every reasonable excuse But most professors also know that this is a slippery slope (for example, ) | if they set very exible rules, what may happen? (Singapore Management University) Introduction to Game Theory Fall 2012 5 / 18 Another Example | Strategic Interactions vs. Individual Decision Problems Underlying story: two students (Alice and Bob) are taking a course together. There are three e ort levels for each student: work hard (utility = 5), work sometimes (utility = 2), shirk (utility = 0). Consider the following two grade schemes. Grade Scheme A: A students nal grade only depends on her own e ort level | if a student works hard, she will get an A for sure (utility = 10); if she works sometimes, she will get a passing grade (utility = 5); while if the student shirks, she will fail the course for sure (utility = 0). Individual Decision Problem E ort Level Utility Disutility Net Work Hard 10 5 Work Sometimes 5 2 Shirk 0 0 (Singapore Management University)