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Game Theory: The Four Types Of Game Theories

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Game theory

Generally, game theory is a play when the sides can cooperate or conflict with each other. It is applied to situations where two different agents are depended on each other’s choices. The agents can be anyone starting from people ending with companies. The main benefit of game theory is the method that it creates to analyze problems connected with strategic choices
There are two major types; first type of theory is cooperative theory. It s mainly used in political science, in this type of games most important is the power that each player has. In contrast with this cooperation, there is also noncooperative theory; this means that each player makes choice according to their interest and what gets them benefited the most. Noncooparative …show more content…

Each firm can decide to stop cooperating in order to increase their profit, even force the other to quit the market. Firm 1 can either keep cooperating with firm 2, or defect. If firm 1 cooperates firm 2 will need to make a decision. It is important that the data is known for the second player after firm 1 chose either to cooperate or to defect. However both of the companies will choose to defect, because both players know that if they take the first step to cooperate the second player will definitely choose to make a decision for its own profit this leaves the first player with 0 benefits. (The reason 1 one will not cooperate). If 1 firm doesn’t cooperate it means this firm defects, when this player one defects the second firm has a choice to get zero payoff or to get 250 million dollars of course 250 is better than nothing so the second player will also …show more content…

It means players cannot rely on their considerations about the outcomes. A Nash equilibrium is a state were no participant can gain by changing strategies as long as the players’ choices remain unchanged. In tree diagram (explained above) the Nash equilibrium is when both collude, because neither firm A can change and have more profit by changing their strategy, nor can B .
In some games it may occur that there are two Nash equilibriums, for example when two firms are merging into two divisions of a large firm and they need to choose the system to work with, definitely both of them want to work with systems they are already familiar with. In this case we have two Nash equilibrium points. Let’s call systems F and G
f

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