Game Theory

Write a blog by using the method of game theory and the ecnomics of strategy, identify a real-world business situation in which the payoff of any given decision-maker depends on what the other decision-makers do.

In your blog entries, you are to identify a real-world business situation in which the payoff of any given decision-maker depends on what the other decision-makers do. This real-world business situation can be something that has actually happened or is happening (e.g. a financial bubble, a price war that was covered in the news, etc.) or can be a hypothetical situation. If you write about a hypothetical situation, make sure it is realistic and interesting - ideally your topic will be about something we regularly observe in the business world but don’t fully understand, and your game theoretic analysis sheds some light on the phenomenon. You should then try to model the situation as a game, identifying the features that comprise your game (e.g. the players, the actions available to each player and the payoffs realized by all players for any combination of actions taken). Recall that the payoffs don’t need to be “true”, they only need to make sense relative to each other and be consistent with the story you’re telling (e.g. if you claim that strategy A is the dominant strategy for Player 1, payoffs associated with it should be higher than from any other strategy). If you wish to represent a game in a payoff matrix, draw reaction functions, or include any other graphic, you can attach this file to your blog post in Moodle. You should then compare what your game theoretic analysis suggests would happen in the game with what we observe happening in the real world. How well does it match up? If it doesn’t match very well, why might that be? Recall what we posit about the players’ knowledge, the order of decisions in the game, etc. in the types of games we’ve looked at so far. Entries should be no longer than 800 words