Decision Making in Engineering Design
21 Game Theory in Decision-Making
Download citation file:
- Ris (Zotero)
- Reference Manager
Classical decision theory and optimization theory have often exclusively focused on situations in which a single decision-maker needs to find an optimal decision that maximizes or minimizes an objective function that depends on some given parameters and the decision variable of the decision-maker. In many situations, however, the well-being of an individual depends not only on what he or she does but on the outcome of the choices that other individuals make. In some instances, this element of mutual interdependence is so great that it must be explicitly taken into account in describing the situation.
For example, in discussing the phenomenon of Global Warming it would be ludicrous to suggest that any one country could, by changing its policies, affect this in a significant way. Global warming is precisely that: a global phenomenon. Therefore, in any analysis of global warming we have to allow for this. But then this raises questions about what is the right strategy to use in tackling the problem. How should any one country respond? What will be the reaction of the other countries and so on. Clearly, actions taken must be strategically analyzed and it is not as clear as to what is an optimal strategy.
Let us take a look at a situation in which strategic play is important. The following excerpt taken from the New York Times reported on a settlement made by airlines on a price fixing lawsuit.
• “Major airlines agreed to pay $40 million in discounts to state and local governments to settle a price fixing lawsuit. The price fixing claims centered on an airline practice of announcing price changes in advance through the reservations systems. If competitors did not go along with the price change, it could be rescinded before it was to take effect.”