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Game Theory Applications Deliverable Worksheet 6 and 7 Deliverable 6 S1 – The scenario illustrates how the principle if elimination of dominated strategies maybe applied iteratively. – The customer is willing to buy as long as the level of service by the Telecom company is upgraded. – The customer does not have a dominating strategy/ The customer’s level of preference is dependent on the level of service. In this case, the game is no longer symmetric. – Due to the nature of the game, the case is best represented using a game tree. – Telecom will be the first to go in the game. S2 – Nash equilibrium is dependent on non-credible threats – Suppose the game is changed by introducing an opt-out clause into the service contract – Customers also have the liberty to discontinue their use of the services because it is of lower quality compared to their past experiences. – This non-credible threats have to be ruled out so that an equilibrium is reached – Backward induction is introduced for the subgame S3 S4 S5 S6 The solution is that telecom has to upgrade the service for the customers to buy the service. Optimum Strategy of the Game – Not buying is not an optimal choice because it disagrees with backward induction. – The customer never has to make a move and is therefore the least expected person to make the strategy. – The subgame is opted for since it allows for the customer to learn about their upgraded service and thus increase their ...
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Awesome! Perfect study aid.