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Managerial Economics, 8e
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Diagnostic/Quiz+ Multiple-Choice Quizzes
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Chapter Review
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Diagnostic/Quiz+ Multiple-Choice Quizzes
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Vocabulary Flashcards
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Ebook
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Diagnostic/Quiz+ Multiple-Choice Quizzes
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Diagnostic/Quiz+ Multiple-Choice Quizzes
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Vocabulary Flashcards
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Ebook
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Diagnostic/Quiz+ Multiple-Choice Quizzes
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Chapter Review
Vocabulary Flashcards
Sentence Completion Exercises
Spreadsheet Exercises
Study Plan
Ebook
Chapter Outline
Diagnostic/Quiz+ Multiple-Choice Quizzes
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Chapter Review
Vocabulary Flashcards
Sentence Completion Exercises
Spreadsheet Exercises
Study Plan
Ebook
Chapter Outline
Diagnostic/Quiz+ Multiple-Choice Quizzes
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Chapter Review
Vocabulary Flashcards
Sentence Completion Exercises
Spreadsheet Exercises
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Ebook
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Diagnostic/Quiz+ Multiple-Choice Quizzes
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Chapter Review
Vocabulary Flashcards
Sentence Completion Exercises
Spreadsheet Exercises
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Ebook
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Diagnostic/Quiz+ Multiple-Choice Quizzes
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Ebook
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Diagnostic/Quiz+ Multiple-Choice Quizzes
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Vocabulary Flashcards
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Diagnostic/Quiz+ Multiple-Choice Quizzes
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Chapter Review
Vocabulary Flashcards
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Spreadsheet Exercises
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Chapter 12
Game Theory
Chapter Review
Strategic decisions involve interactive payoffs. Since a player's payoff depends on his or her decision and the decisions of others, that player must anticipate the actions of others in formulating an optimal strategy.
Game theory is a mathematical framework that can help managers anticipate the actions of others. The theory helps managers represent strategic issues by focusing on the players involved, their feasible strategies, the possible outcomes, and the payoffs associated with those outcomes.
In solving games, managers first need to look for dominant strategies. If they exist, managers need not consider the actions of others. Rational players always play their dominant strategy.
If dominant strategies do not exist, managers should try to predict the behavior of others using the solution concept of the Nash equilibrium. This concept assumes that all players do the best they can, conditional on all others doing the best they can. This is the most widely used solution concept in game theory.
Managers should use strategic foresight; this is the ability to make decisions today that are rational, conditional on the anticipated future behavior of others. Game theory models this foresight through backward induction. In using backward induction, we go to the end of the game to determine what strategies players will use, and then choose an action for the current period that is rational given these future beliefs.
Managers must pay attention only to signals that are credible. Game models can determine the credibility of threats, promises, commitments, and the like.
Games with a future are called repeated games. When a future exists, players may change the strategies they select. Generally speaking, gaining cooperation from others is much easier in a repeated game.
Game theorists have developed incomplete information models to look at situations where there is a future and some uncertainty exists about the traits of others. Under these conditions, building a reputation is important because reputations can generate future rents (income).
The ability to coordinate is an important managerial trait. Coordination models help managers better understand the impediments to coordination and the actions necessary to decrease coordination costs.