Abstract
Assuming that any decision-maker will maximize the expected value of some utility function, we will find different methods to decide which action among all possible alternatives could be the most appropriate according to our interests. If we use, for example, a multi-criteria decision-making approach we would conduct an analysis arranging all relevant factors in a hierarchical structure. With a cost-benefit analysis our focus will be directed to assess the strengths and weaknesses of all possible options to determine the decision that gives us the highest possible net payoff. There are other situations where the outcome will not only depend on one’s own decision but also on that of other actors, and vice versa. These would be the so-called interdependent decisions. In such cases we might be interested in gathering information other than the one needed for a cost-benefit or a multi-criteria analysis, like information about the intentions of other decision-makers who are involved. Game theory represents a part of decision theory, where two or more decision-makers are involved in the result. To carry out these analyses we assume decision-makers to be intelligent and rational. The meaning of being intelligent in the context of game theory refers to the assumption that each player will not only know his possible payoffs and strategies but also his enemy’s. Therefore, he will be able to make any inference about the game that any other external observer sharing the same information would be able to make, too. Game theory aims to analyze situations of conflict and cooperation by means of mathematical models. The resulting models should provide guidance for either player when having to choose a strategy in order to achieve a good or possibly the best outcome.
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Notes
- 1.
Obviously we do not observe this in all real-life situations. For more about theoretic foundations about decision-making see, e.g., Meyerson (1991).
- 2.
In coordination games focal points might exist—if there is some property all players can recognize—making one of the equilibria to stand out from the others. Each player would expect the other to recognize the attribute that makes this equilibrium to stand out and therefore play it (Schelling 1960, p. 57).
- 3.
According to Simon, emotional impulses often override rational deliberations. One could think individuals would rather satisfy than optimize. Selten (1998b) introduced the “Aspiration, Adaptation Theory” where individuals would make choices in order to satisfy some aspiration. Selten (1998a) also found experimental evidence pointing to a substantial deviation from Bayesian rationality.
- 4.
Biology has a record of a great influence of using concepts of evolutionary games.
- 5.
We find this possibility in non-cooperative games when players have the opportunity to communicate before they play. In such cases they can reach an agreement or coordinate their strategies in a way it benefits both. Such scenarios would lead to so-called “coalition-proof Nash equilibria”. See Bernheim et al. (1987).
- 6.
- 7.
An altogether different approach would of course be to change the design of a game in such a way that players would no longer have any incentive whatsoever to deviate from their respective Nash equilibrium strategies as authors like, e.g., Maskin (2008) have suggested.
- 8.
Widely in Thaler (1988).
- 9.
Hoffman et al. (1994) found evidence that showed that in addition to fairness there were other factors affecting the behavior of players in the ultimatum and the dictator game. First movers would act differently if their role is not assigned randomly but earned. And second, they would act affected by the social concern about what others may think, and therefore establish a relationship between anonymity and the level of fairness with which the payoffs were distributed.
- 10.
Bueno de Mesquita’s theories in The War Trap refer to interstate conflicts.
- 11.
The model also includes expected utility functions for third countries considering whether to enter into a military alliance or not (Bueno de Mesquita 1981, pp. 59–91).
- 12.
In addition, Bueno de Mesquita and Lalman (1992) provide empirical evidence of their model analyzing 707 cases from 1876 to 1970 that support their results.
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Ordóñez, L.M. (2017). Game Theory and the Decision-Making Process in Military Affairs. In: Military Operational Planning and Strategic Moves. Contributions to Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-56108-0_2
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