PRESENTATION PRESENTATION ON :- GAME THEORY PRISONERS DILEMMA ON :- GAME THEORY PRISONERS

PRESENTATION ON :-GAME THEORYPRISONERS DILEMMA SUBJECT :- MANAGERIAL ECONOMICSPRESENTED BY :- PEERZADA BASIM , NAQSHAB , INSHA , AREEB

DESIGNED BY :- PEERZADA BASIMSUBMITTED TO :- SHAHID SIR

ACKNOWLEDGEMENTFirst of all we would like to thank ALLAH Almighty who gave us the courage, health and energy to accomplish our presentation in due time and without whose help this presentation which required untiring efforts would have not been possible to complete within the time limits.

Then we wish to express our sincere gratitude to Shahid Sir, for providing us opportunity to make this presentation on GAME THEORY : PRISONERs DILEMMA.

GAME THEORY This theory was developed extensively in 1950s by many scholars. This theory was later explicitly applied to biology in the 1970s , although similar developments go back at least as far as the 1930s. Game theory has been widely recognized as an important tool inmany fields. Eight game-theorists have won the Nobel Memorial Prize in economic sciences, and John Maynard Smith was awarded the Crafoord Prize for its application of game theory to biology.

A model of optimality taking into consideration not only benefits less costs, but also in the interaction between participants. Game theory attempts to look at the relationships between participants in a particular model and predict their optimal decisions.

Game theory is a mathematical method for analyzing calculated circumstances, such as in games, where a persons success is based upon the choices of others. More formally, It is the study of mathematical models of conflict and cooperation between intelligent rational decision-makers.

An alternative term suggested as a more descriptive name for the discipline is interactive decision theory. Game theory is mainly used in economics, political science and psychology, and other, more prescribed sciences like logic or biology. The subject first addressed zero-sum games, such that one persons gains exactly equal net losses of the other participant.Today, however, game theory applies to a wide range of class relations, and has developed into an umbrella term for the logical side of science, to include both humans and non-humans, like computers. Classic uses include a sense of balance in numerous games, where each person has found or developed a tactic that cannot successfully better his results, given the other approach.

One frequently cited example of game theory is Prisoners Dilemma.Suppose, there are two brokers accused of fraudulent trading activities: Wajahat and Maharif. Both Wajahat and Maharif are being interrogated separately and do not know what the other is saying. Both brokers want to minimize the amount of time spent in jail and here lies the dilemma. The sentences vary as follows :-1.If Wajahat pleads not guilty and Maharif confesses, Maharif will receive the minimum sentence of one year, and Wajahat will have to stay in jail for the maximum sentence of five years.

2.If nobody makes any implications they will both receive a sentence of two years.3.If both decide to plead guilty and implicate their partner, they will both receive a sentence of three years.4.If Maharif pleads not guilty and Wajahat confesses, Wajahat will receive the minimum sentence of one year, and Maharif will have to stay in jail for the maximum five years.

PRISONERsA paradox in decision analysis in which two individuals acting in their own best interest pursue a course of action that does not result in the ideal outcome. The typical prisoners dilemma is set up in such a way that both parties choose to protect themselves at the expense of the other participant. As a result of following purely logical thought process to help oneself, both participants find themselves in a worse state than if they had cooperated with each other in the decision-making process.

EXPLANATION OF PRISONERS DILEMMASuppose two friends, Dave and Henry, are suspected of committing a crime and are being interrogated in separate rooms. Both individuals want to minimize their jail sentence. Both of them face the same scenario:

Dave has the option of pleading guilty or not guilty. If he pleads not guilty, Henry can plead not guilty and get a two year sentence, or he can plead guilty and get a one-year sentence. It is in Henrys best interest to plead guilty if Dave pleads not guilty. If Dave pleads guilty, Henry can plead not guilty and receive a five-year sentence. Otherwise, he can plead guilty and get a three-year sentence.

It is in Henrys best interest to plead guilty if Dave pleads guilty.Dave faces the same decision matrix and follows the same logic as Henry. As a result, both parties plead guilty and spend three years in jail although through cooperation they could have served only two.A true prisoners dilemma is typically played only once; otherwise it is classified as an iterated prisoners dilemma.

STRATEGY FOR THE CLASSIC PRISONERs DILEMMAThe normal game is shown below :-

Demand Schedule For WaterQUANTITY PRICE (Rs.)TOTAL REVENUE (Rs.)012001011011002010020003090270040803200507035006060360070503500804032009030270010020200011010110012000

OLIGOPOLY AS A PRISONER DILEMMAConsider again the choices facing Henry and Dave. After prolonged negotiation, the two suppliers of water agree to keep production at 30 gallons so that the price will be kept higher and together they will earn the maximum profit. After they agree on production level, however each of them must decide whether to cooperate and live up to this agreement or to ignore it and produce at a higher level. Below figure shows how the profits of the two producers depend on the strategies they choose.

EXPLAINATION :-I could keep production low at 30 gallons as we agreed, or I could raise his production and sell 40 gallons. If Dave up to the agreement and keeps her production at 30 gallons, then he earns profit of $2,000 with high production and $ 1,800 with low production. In this case he will better off with high production. If Dave falls to live up to the agreement and produces 40 gallons, then he earn $1,600 with high production and $1,500 with low production. Once again, he is better off with high production. So regardless of what Dave choose to do, he is better off reneging on our agreement and producing at a high level. Producing 40 gallons is a dominant strategy of Henry. Dave reasons in exactly the same way and so both produce are a higher level of 40 gallons. The result is the inferior outcome with low profits for each of the two producers.

SOURCES :-1.Mankiw, economics principal and application, 11th edition, change learning Publication.2.www.gametheory.net3.www.economics.org

Thats All Folks Thank You .