Game theoretic approach , Microeconomics

Assignment Help:

Game Theoretic Approach

This approach shows that cooperation may emerge even within the framework of the prisoner's dilemma (PD) game, where there is repeated interaction over time between different actors. This is examined in the light of recent developments of non-cooperative game theory. Game theorists have found conditions under which the mutual defection outcome would cease to be a unique possible equilibrium even within the basic framework of the PD game. In other words, they have set about demonstrating the possibility of cooperation without giving up the payoff structure characteristic of the PD.

The reason why cooperation may be consistent with self-interested behaviour is that the repetition of the game opens the door to the possibility of conditional cooperation and punishment. More precisely, to show that cooperation is possible, the assumption must be made that the game is repeated infinitely or that information is incomplete - there is some uncertainty about the others' strategies or about the length of the game (the game horizon is finite or indefinite). The explanation of the cooperative outcome in a non-cooperative PD game is presented in three steps in the following.

1. Repetition of the PD game is not by itself sufficient to make cooperation a possible outcome. Unconditional defection at all periods is the dominant strategy of this game. Indeed, when the game has a finite length, non- cooperation is the unique equilibrium outcome.

2. If the length of the game is infinite, cooperation becomes possible. In this case, it may be worthwhile giving cooperation a try. A similar possibility obtains when the length of the game is finite but indefinite. Here, 'tit for tat' is an equilibrium strategy, where tit-for-tat is based on the principle: start by choosing to cooperate and thereafter choose the action that the other player chooses.

3. For cooperation to succeed in this kind of game, it is crucial to assume that if the player for whom there is doubts that he could follow a tit-for-tat strategy ever deviates from that strategy, then he would be immediately considered as being rational by the other player and non-operation would ensue. This conclusion may also be reached if the number of rounds in the game is rather small. Yet, The probability that the other player can play only tit-for-tat strategy must be large enough if cooperation is to occur in a game that is not long repeated. If this requirement is met, there exists an equilibrium in which both players can cooperate.

Thus, in a non-cooperative game theory, cooperation is a possible outcome, especially when interactions among group users are frequent. However, this outcome is possible in a small group. In a society of large groups there is no internal mechanism to induce and sustain collective action. In such a society, cooperation can effectively be sustained, provided that an effective authority structure exists to provide the required leadership.

 


Related Discussions:- Game theoretic approach

Discuss about modern economic growth, Discuss about Modern economic growth ...

Discuss about Modern economic growth Modern economic growth is also a shift in the kinds of things we do at work and play and in the way we live. Back in immediate aftermath of

Please Help, 7.Consider the following production possibilities table: Op...

7.Consider the following production possibilities table: Option Y X A 0 100 B 80 80 C 120 50 D 140 10 a)Provide a measure of the approximate marginal opportunity cost of

How are the limitations of the economics theory affected, How are the limit...

How are the limitations of the economics theory affected? Limitation of Economic Theory: While examining the generality of an economic theory, one must realize any assump

Application on infifference curve , i want an application on indifference c...

i want an application on indifference curve of a specific firm? can i get it easily?

The market forces of supple and demand, Market research has revealed the fo...

Market research has revealed the following information about the market for chocolate bars: The demand schedule can be represented by the equation QD= 1,600-300P, where QD is the q

Determine the returns to scale, Determine the Returns to Scale Use the f...

Determine the Returns to Scale Use the following production function and budget constraint to answer the questions below. Q = L + K                            1000 = 2L +

Profits, explain normal profits

explain normal profits

Find the price elasticity of demand of good, Consider a consumer with the f...

Consider a consumer with the following Cobb-Douglass utility function: U (x, y) = x α y 1-α a)  Find the Marshallian Demand for both goods. b)  Find the Price Elasticit

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd