Practical applications game theory

This determines that it can be more profitable to attain more, but less expensive items. These analyses using game theory can also help avoid seriously costly mistakes that might have been based off of misconception about how people would behave.

For example, the government of Israel tried to tweak the rules of a regular auction, in order to encourage more expensive bidding, by awarding a large monetary to the second highest bidder. However, instead bidders bid less than they normally would because they wanted the prize, and Israeli government ended up losing a lot of money.

Game theory has also taken on practical applications outside of the realm of economics. It is also being use to predict political outcomes and to locate wanted terrorists.

Similarly, the concept of game theory is also being used in deciding whether entering a new market or exiting it. The applications of game theory are also being used widely in deciding upon the pricing strategies of both consumers and retailers.

Retailers compete against each other to gain market share of customers and for this, they opt for different games or strategies, like offering attractive discounts on specific goods in order to increase sales of complementary products. For example, in the offseason, i. In this, retailers use the game theory approach where retailers and consumers are the main players.

The focus of retailers is on using the best pricing strategy while the preference of consumers is to choose the best deal in terms of discount and variety. Using game theory, decisions regarding buying and selling shares in the stock market can be taken wisely. The investors make different stock market decisions by using different strategies of investment and by considering different players or investors.

Game theory helps in predicting the decisions of other players related to investments, and based on these decisions, they can decide upon the strategies for themselves which maximize profit.

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