Competitive Decision Making - Game Theory
Overview
Competitive decision making is decision making in the presence of other agents whose decisions also affect the outcome.
The standard example of this is the situation of two players playing a game, such as chess. The mathematical theory that
studies these types of situations is game theory, although, it is meant to apply to any competitive decision making situation.
Simple Game
A game is a situation where the actors in the game each make a set of decisions which determine the final
outcome of the game.
Consider the following diagram.
Player 1 makes the decision at decision 1. Then Player 2 makes the decision, either at Decision 2 or Decision 3, which determines
the outcome of the game.
Types of Games
- Perfect Information - a game where the choices and all outcomes are known ahead of time
- Incomplete Information - a game where not all information is available.
- Cooperative Games - games where players may join or cooperate
Optimal Strategy
Axioms
The primary assumptions needed for game theory is a framework for understanding the choices and preferences of
the players of a game. This can usually be glossed over by assigning numerical values to the outcomes
(such as payments) and that players are attempting to maximize their numerical outcome.
For a more in depth look at choice and preference, please see
Choice and Preference
