Game Theory And Rational Decision Making

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Simply put, game theory is considered to be a bag of analytical tools. These tools are used to help model, analyse, and understand the phenomena that is observed when decision-makers interact with each other [44]. Game theory provides a framework based on models gamse of con ict and cooperation between rational decision makers [44].These situations consist of several decision makers with dierent objectives. In these situations, the decision of each decision-maker aects the outcome for all the decision makers involved thus distinguishing game theory from standard decision theory, which solely involves one decision maker and his or her goal. Game theory tries to determine the behaviour of the players and what their move will be [36]. The basic…show more content…
A solution to a game is described as the various outcomes that may occur within a set of games. By using game theory, one is able to put forward reasonable solutions for categories of games and examines the properties of these solutions [44]. Strategic and Rational Players A game is described as an account of strategic interactions. The account of strategic interactions; a game, consists of constraints. A game also takes into consideration the player's interests. However, a strategic game does not determine or say what actions are taken by the players in the end [19]. The most basic parts of a game are as follows: (i)All game theoretic models consist of players. A player is dened as either an individual or a group of individuals making a decision. (ii)Each player has a set of actions he or she can take which will be referred to as the player's possible strategies. (iii)For each strategic option, each player receives a payo that can depend on the strategies selected by other…show more content…
A binary relation is formally a subset of O X O, but instead of writting (x,y) 2 %i, x %i y is written instead. In normal text. it is saying 'player i either prefers x to y or is indierent etween the two outcomes'. Another way to describe this reference is by saying that the player 'weakly prefers' x to y. Based on the preference relation %i, it is possible to describe the corresponding 'strict preference' relation i, which describes when player i strictly prefers one outcome over the other [36]. x y () x % iy and y ix The indierence relation i expresses the fact that a player is indiernt between the two possible outcomes It can be dened as follows: x y () x % iy and y % ix It is assumed that every player's preference relation satises the following three properties: Assumption 1 The preference relation %i over O is complete; that is, for any pair of outcomes x and y in o either x % i y and y % i x, or both. Assumption 2 The preference relation %i over O is re exive; that is, x % i x for every x () O. Assumption 3 The preference relation %i over O is transitive; that is, x % i x for any triple of outcomes x, y, and z in O, if x % i y and y % i z then x % i

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