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Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
Game Theory and Conflict
Based on: “Games People Play”
By Prof. Scott Stevens
The Teaching Company
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
Game Theory
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
What is game theory?
• Game theory is a branch of applied
mathematics that studies strategic situations
where participants choose different actions in
an attempt to maximize their returns.
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
It may be used to explain …
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
… Predict …
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
… Evaluate …
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
… Human Behavior
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
Attention!
• Bad news:
Knowing game theory does not guarantee
winning
• Good news:
Framework for thinking about strategic
interaction
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
Why game theory?
• Because we can formulate effective strategy…
• Because we can predict the outcome of
strategic situations…
• Because we can select or design the best
game for us to be playing…
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
Classical Games!
2x2 Simultaneous Games
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
Definition
• 2 players
• One of two moves
• Neither of the players know what the other is
doing before he/she decides
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
The coordination game!
• YOU prefer one of two choices
• YOU prefer to have same choice as OTHER
• Luckily, OTHER prefers the same choice!
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
Example
• YOU prefer developing software using
Windows
• YOU and OTHER are developing software to
the same customer
• YOU and OTHER prefer developing using the
same operating system
• Operating system choices are Windows or
Linux!
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
Payoff Matrix
Payoff
YOU
Windows Linux
OTHER
Windows 2+2 0+1
Linux 1+0 1+1
Sometimes, the solution is not obvious!
1- If you BOTH do not think in the same way!
2- If OTHER is Irrational!!!
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
The battle of the sexes game!
• YOU prefer one of two choices
• YOU prefer to have same choice as OTHER
• Unfortunately, OTHER prefers the other
choice!
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
Same Example
• YOU prefer developing software using
Windows, while, OTHER prefers Linux
• YOU and OTHER are developing software to
the same customer
• YOU and OTHER prefer developing using the
same operating system
• Operating system choices are Windows or
Linux!
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
Different Payoff Matrix!
Payoff
YOU
Windows Linux
OTHER
Windows 2+1 0+0
Linux 1+1 1+2
NO GOOD SOLUTION!
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
Solutions!
• Communicate both ways
• Send a message  one way communication
• Select your preference and guarantee at least
one point!
• Guess based on previous experience of OTHER
preferences
• The use of a focal point
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
The Chicken game!
• YOU prefer one of two choices
• YOU prefer that OTHER have opposite choice
• Unfortunately, OTHER prefers the same
choice!
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
Same Example
• YOU and OTHER prefer developing software using
Windows
• YOU and OTHER are developing software to the
same customer
• YOU and OTHER prefer developing using the
different operating systems so that the customer
remains dependent on you only!
• Operating system choices are Windows or Linux!
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
Different Payoff Matrix!
Payoff
YOU
Windows Linux
OTHER
Windows 0+0 1+3
Uniux 3+1 1+1
You both end crashing into Windows!
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
Solution!
• One player has to commit to a choice!
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
The Prisoners’ Dilemma game!
• If YOU and OTHER choose choice A, you both
win 3 points
• If YOU choose A and OTHER chooses B, you
win 1 point, and OTHER wins 4 points
• If YOU choose B and OTHER chooses A, you
win 4 points and OTHER wins 1 point
• If you both chose B, you both get 2 points
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
Same Example
• If YOU and OTHER develop using Windows, you
get paid 3 M$ each
• However, if only one of you develops for Linux, he
gets 4 M$ for being distinguished, while the other
only gets 1 M$ for being so old fashioned
• If you both develop for Linux, you get paid only 2
M$ each as there is no distinguishing and you
probably used open source code!
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
Different Payoff Matrix!
Payoff
YOU
Windows Linux
OTHER
Windows 3+3 4+1
Linux 1+4 2+2
What would you do?
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
Solutions!
• The only RATIONAL solution for both of us is
to develop using Linux! … It is safer!!!
• We both reach the less than best solution
• UNLESS we cooperate!
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
Bidding Example!
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
Two-Tiered bidding
• In 1988 “Bloomingdales” had a market price of
100$ per share … it is being sold out!
• “Macy’s” offered 102$ per share provided that
they get majority of stocks (50% +1)
• Robert Campeau offered a two-tiered offer of
105-90$ per share  for the first 50% of shares,
he pays 105$ per share for all shares and for the
rest he pays an extra 90$ per share for all shares!
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
Let’s use numbers
• If there are only 10 shares … the total share
price is 1000$
• If Macy’s took over, they will pay 102$ for
each of the first 5 shares and the rest remains
for 100$, the total price will be 1010$
• If Campeau gets the first 5 shares, he will pay
525$ for them, for the other 5 shares, he will;
pay 450$ for a total of 975$ !!!
Game Theory and Conflict
Mohammad Tawfik
#WikiCourses
http://WikiCourses.WikiSpaces.com
Every body loses except Campeau!
• Campeau created a prisoners’ dilemma

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Game Theory and Negotiations

  • 1. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Game Theory and Conflict Based on: “Games People Play” By Prof. Scott Stevens The Teaching Company
  • 2. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Game Theory
  • 3. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com What is game theory? • Game theory is a branch of applied mathematics that studies strategic situations where participants choose different actions in an attempt to maximize their returns.
  • 4. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com It may be used to explain …
  • 5. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com … Predict …
  • 6. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com … Evaluate …
  • 7. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com … Human Behavior
  • 8. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com
  • 9. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Attention! • Bad news: Knowing game theory does not guarantee winning • Good news: Framework for thinking about strategic interaction
  • 10. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Why game theory? • Because we can formulate effective strategy… • Because we can predict the outcome of strategic situations… • Because we can select or design the best game for us to be playing…
  • 11. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Classical Games! 2x2 Simultaneous Games
  • 12. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Definition • 2 players • One of two moves • Neither of the players know what the other is doing before he/she decides
  • 13. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com
  • 14. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com The coordination game! • YOU prefer one of two choices • YOU prefer to have same choice as OTHER • Luckily, OTHER prefers the same choice!
  • 15. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Example • YOU prefer developing software using Windows • YOU and OTHER are developing software to the same customer • YOU and OTHER prefer developing using the same operating system • Operating system choices are Windows or Linux!
  • 16. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Payoff Matrix Payoff YOU Windows Linux OTHER Windows 2+2 0+1 Linux 1+0 1+1 Sometimes, the solution is not obvious! 1- If you BOTH do not think in the same way! 2- If OTHER is Irrational!!!
  • 17. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com
  • 18. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com The battle of the sexes game! • YOU prefer one of two choices • YOU prefer to have same choice as OTHER • Unfortunately, OTHER prefers the other choice!
  • 19. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Same Example • YOU prefer developing software using Windows, while, OTHER prefers Linux • YOU and OTHER are developing software to the same customer • YOU and OTHER prefer developing using the same operating system • Operating system choices are Windows or Linux!
  • 20. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Different Payoff Matrix! Payoff YOU Windows Linux OTHER Windows 2+1 0+0 Linux 1+1 1+2 NO GOOD SOLUTION!
  • 21. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Solutions! • Communicate both ways • Send a message  one way communication • Select your preference and guarantee at least one point! • Guess based on previous experience of OTHER preferences • The use of a focal point
  • 22. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com
  • 23. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com The Chicken game! • YOU prefer one of two choices • YOU prefer that OTHER have opposite choice • Unfortunately, OTHER prefers the same choice!
  • 24. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Same Example • YOU and OTHER prefer developing software using Windows • YOU and OTHER are developing software to the same customer • YOU and OTHER prefer developing using the different operating systems so that the customer remains dependent on you only! • Operating system choices are Windows or Linux!
  • 25. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Different Payoff Matrix! Payoff YOU Windows Linux OTHER Windows 0+0 1+3 Uniux 3+1 1+1 You both end crashing into Windows!
  • 26. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Solution! • One player has to commit to a choice!
  • 27. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com
  • 28. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com The Prisoners’ Dilemma game! • If YOU and OTHER choose choice A, you both win 3 points • If YOU choose A and OTHER chooses B, you win 1 point, and OTHER wins 4 points • If YOU choose B and OTHER chooses A, you win 4 points and OTHER wins 1 point • If you both chose B, you both get 2 points
  • 29. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Same Example • If YOU and OTHER develop using Windows, you get paid 3 M$ each • However, if only one of you develops for Linux, he gets 4 M$ for being distinguished, while the other only gets 1 M$ for being so old fashioned • If you both develop for Linux, you get paid only 2 M$ each as there is no distinguishing and you probably used open source code!
  • 30. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Different Payoff Matrix! Payoff YOU Windows Linux OTHER Windows 3+3 4+1 Linux 1+4 2+2 What would you do?
  • 31. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Solutions! • The only RATIONAL solution for both of us is to develop using Linux! … It is safer!!! • We both reach the less than best solution • UNLESS we cooperate!
  • 32. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Bidding Example!
  • 33. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Two-Tiered bidding • In 1988 “Bloomingdales” had a market price of 100$ per share … it is being sold out! • “Macy’s” offered 102$ per share provided that they get majority of stocks (50% +1) • Robert Campeau offered a two-tiered offer of 105-90$ per share  for the first 50% of shares, he pays 105$ per share for all shares and for the rest he pays an extra 90$ per share for all shares!
  • 34. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Let’s use numbers • If there are only 10 shares … the total share price is 1000$ • If Macy’s took over, they will pay 102$ for each of the first 5 shares and the rest remains for 100$, the total price will be 1010$ • If Campeau gets the first 5 shares, he will pay 525$ for them, for the other 5 shares, he will; pay 450$ for a total of 975$ !!!
  • 35. Game Theory and Conflict Mohammad Tawfik #WikiCourses http://WikiCourses.WikiSpaces.com Every body loses except Campeau! • Campeau created a prisoners’ dilemma