# Game Theory and Risk Analysis

## Game Theory and Risk Analysis

• Submitted By: metuba
• Date Submitted: 10/30/2011 4:17 PM
• Words: 500
• Page: 2
• Views: 413

In our daily lifes, people make some decisions. While these decisions are sometimes true, sometimes not and result of them directs their routes. When these decisions depend upon other’s choices, relation between both sides is analyzed with a mathematical method which is called “ Game Theory”. Today it is used a wide range area. 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 approach1. As mentioned above, you are member of either team A or team B.the purpose of game is to make gain the largest positive total points. You play the game by selecting for ach round either strategy X or strategy Y. Points are awarded as illustrated in the matrix below:
Team A
Choice X Choice Y

Team B
Choice X A +5
B +5 A +15
B -15

Choice Y A -15
B +15 A -20
B -20

As seen, both of them can win or lose, or one of them can lose. This can be associated with a chalenge between two component firm. If both increase the price, both gain, if they decrease the price, customers gain or one of them decreases and other increases, the firm decreasing the price loses, other gains.
According to Louis Anthony Cox, President of Cox Associates, a Denver-based applied research company specializing in quantitative risk assessment, causal modeling, data mining, and operations research, key game theory concepts such as mixed strategies, common-knowledge priors, and various types of probabilistic solutions (e.g., Bayesian Nash, perfect, trembling hand, and other equilibria inmixed strategies) are not needed to define and calculate optimal strategies when the defender acts first, the attacker acts second, and each player is perfectlyinformed about the other’s opportunities and actions. Instead, relatively simple optimization can be used (at least in principle, and often in practice when the possible allocations and their effects...