Alternative Strategies

Now that we have seen the basic structure of a game, consider how you should behave as a player. In economics, we assume that firms maximize profits and consumers maximize utility. The new element in game theory is to think through the goals and actions of your opponent and to make your decisions on the basis of your opponent’s goals and actions. But you must always remember that your opponent will also be trying to outwit you.

The guiding philosophy in game theory is tilt’ following: Pick your asking-what makes 1I1!l~t sense for you assuming that your and doing what is best for. Let’s apply this maxim to· the duopoly example. First, note that our two firms have the highest joint profits in outcome A Each firm earns $10 when both .

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