1. Using the game theory technique discussed in class, select the best decisions
ID: 353476 • Letter: 1
Question
1. Using the game theory technique discussed in class, select the best decisions for Time and Newsweek in the following situation? Consider the news magazines, Time and Newsweek, each trying to choose between cover stories about ISIS and 2016 presidential candidates (Presidency 2016). The game table below presents information for both players. Newsweek cover story SIS (42% 25% (30%, 70%) Presidency 2016 (70%, 30%) (18%, 12%) Time cover ISIS story Presidency 2016 In each outcome box, the left-hand side value represents Time's payoff, while the right-hand side value represents Newsweek's payoff. Thus we see that if Newsweek and Time both choose ISIS for their cover stories, for example, Newsweek will get 28% of the readers, and Time will get 42%. The other 30% of readers are only interested in the 2016 presidential candidates' story so they would buy neither magazine in that case. What is the Time's decision? What is the Newsweek's decision? Why?Explanation / Answer
Time’s decision is to cover ISIS
Newsweek’s decision is to cover ISIS as well
The reasons are given below.
We can use the dominant strategy method to determine the decisions.
Let’s first determine what Times should do. If Newsweek covers ISIS then the best decision for Times is to cover ISIS as well. If Newsweek covers presidency, then Times should cover ISIS. Hence Covering ISIS is Time’s dominant strategy.
Let’s try to determine Newsweek decision. If Times covers ISIS, then Newsweek should cover presidency. If Times covers presidency then Newsweek should cover ISIS. This means Newsweek does not have any dominant strategy. Given that they don’t have any dominant strategy we could look at the impact of choosing either ISIS or Presidency for Newsweek. In case if they choose ISIS then the payoffs are 28% or 70%. If they choose presidency then the payoffs are 30% and 12%. Given these conditions and average payoff being higher at ISIS, Newsweek should choose ISIS.
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