Game theory is the study of strategic interaction between economic agents in models of conflict or coop- eration. It was developed by mathematicians and today is primarily used in economics, political science, or psychology to model and predict human behavior. It can be applied to a wide range of behavioral relations. This assignment will ask you to apply game theory to a real-life situation from your own experience. Identify a time when you and another party were either competing or cooperating and had the option to choose two (or more) strategies to achieve your respective goals. Estimate what you believe were the likely payoffs that would have arisen from each possible strategy you could have employed. Do the same thing for the other person in the situation. Then use the concept of Nash equilibrium to predict the outcome of your interaction.
Game Equilibrium:
(a) Given the payoffs you estimated, what is the predicted Nash equilibrium? Name the strategy each player will likely employ and the payoffs each are likely to receive.
(b) Is it appropriate to apply game theory techniques to the situation you described above? Provide reasons to justify this opinion. Provide reasons why using game theory techniques might actually make sense.
(c) Was the predicted Nash equilibrium the actual outcome of your interaction? If not, why not - what aspect of the interaction (payoff, constrained choice, outside intervention, etc.) failed to make it into your model?
(d) If you could re-live the interaction, how might the use of game theory change your behavior the second time around?