What is Game Theory?. It is part of the theory of purposeful behavior commonly known as rational choice theory . It specifically focuses on situations with two or more interdependent decision makers. Economic applications Cheating on a cartel Trade wars between countries Advertising.
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-Cartel members can charge the monopoly -price or a lower price.
-Cheating firms can increase profits.
-The best strategy is charging the low price.
Internal and external factors
Who will be the first to reduce tarrifs?
Special interests requesting protection
-All firms advertising tends to equalize the effects.
-Everyone would gain if no one advertised.
Game theory and Defense Policy
What was the strategic relationship between the U.S. and the Soviet Union over the course of Cold War?
What is the difference between “defense” and “deterrence”?
What are the strategic consequences of spy satellites, BMD or ABMs (Anti-Ballistic Missile systems)?
Game theory & Irrational Behavior
Why is it sometimes rational to appear to be “irrational”?
Why do nations (and other actors) often sink so many resources into trying to win a conflict that the value of the resources expended far exceed the value of what is at stake in the conflict?
The Security Dilemma – developing a national defense can be seen as a preparation for war
Spiral Model – both sides fear surpise attack, creating an incentive for a pre-emptive strike.