Strategy (game theory)
From Biocrawler, the free encyclopedia.
A strategy in game theory is a sequence of activities and reactions, that fully determine an agents bahaviour in a game or a business situation. The mathematically precise description of behaviour is connected to computer programming and algorithms.
| Contents |
Examples of strategies
Tit for Tat
Strategies in game theory are of essential importance, since the prisoners dilemma was shown never to lead to cooperation unless multiperiod strategies are considered. A highly effective strategy is "Tit for Tat". It was found in a programming contest, with several algorithms competing for the highest utility score.
Roulette
There is a variety of betting strategies and tactics in the Roulette game. The most famous strategy is the doubling strategy:
- Set 1€
- If you lose: double your bet
- Repeat 2. until you have a profit
This was originally called the "Martingale strategy", and was formalized simply to show why it will not create an expected profit. However, it is a common (folk) strategy seen in many casinos (especially by beginning players, sometimes called "system players"). The typical casino prefers the "system player" to other types of player because the casino's risk is very low (they stand to lose only the minimum bet each time the player starts), but their potential reward is extremely high (the entire capital the gambler stakes). However, most "system players" tend to play only for a short time, and so the casino's edge is not compounded as often against the system player as against the usual roulette players (who vary their bet size less).
Main article: Gambler's fallacy
Hedging
Hegding is a strategy for financial investments, that searches for the lowest risk or optimal risk to performance ratio. Some kind of hedges are uniquely determined from simple parameters. The Black-Scholes equation demonstrates how a continuous stock buy and selling strategy can replicate an option without risk.
