Individual decision making ppt @ becdoms
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Individual decision making ppt @ becdoms
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Individual decision making ppt @ becdoms
- 5. Review of subject structure Subject Situation Description Tool Analysis Individual Decision-Making Single-agent decision One agent must make an optimal decision. The actions of others have no direct influence. Uncertainty and the time-value of money may be concerns. Decision tree Roll-back Strategic Decision-Making Simultaneous moves Both agents know everything about the game and each other. Decisions happen simultaneously. Matrix Game Nash Equilibrium Sequential moves Both agents know everything about the game and each other. Decisions happen sequentially. Sequential Game Roll-back Negotiations Bilateral Two agents who are active negotiations. Try to maximise value and appropriate their share Bargaining Theory Nash bargaining Monopoly One seller versus many buyers. All agents are active negotiators. Bargain over value split. VAUC (Value-Appropriation Under Competition) CDV & added value Many sellers Many sellers versus many buyers. All agents are active negotiators. Bargain over value split. VAUC CDV, added value, Market-clearing prices Mass-Market Pricing Monopoly One seller versus many buyers. Firm sets price. Supply (cost) & Demand (revenue) Functions MC = MR Oligopoly Many sellers vs. many buyers. Firms set prices. Bertrand, Cournot Nash, undercut-proofness
- 8. Individual decision making: “non-strategic” decisions Topic 1
- 11. Types of Decisions Degree of Uncertainty Low High Degree of Interdependence with others’ actions High Low Market entry Extreme sports What to wear What to have for lunch How hard to study Whether to do an MBA Which MBA What to bid
- 13. Example (non-strategic under certainty) = Decision Node: indicates a point at which an action must be taken (one path for each possible action) CBD $120,000 $150,000 Brunswick open a restaurant don’t $0 Entry decision Location decision
- 16. Step II Abandon Continue Not Proposal $0 Expend $50,000 and perhaps win
- 18. Step III Abandon Continue Not Proposal $0 Win Lose 0.05 0.95 $800,000 -$50,000
- 19. Step IV Abandon Continue Not Proposal $0 Win Lose 0.05 0.95 -$50,000 Succeed Fail 0.5 0.5 $800,000 Expend $50,000 and perhaps win Expend $50,000 and have a good chance of winning
- 20. Step V No Prop No Prop Abandon Continue $0 W L 0.05 0.95 -$50,000 Succeed Fail 0.5 0.5 $800,000 No Prop -$200,000 W L 0.9 0.1 -$250,000 $600,000 -$200,000 W L 0.05 0.95 -$250,000 $600,000
- 24. Solving the Tree Abandon Continue Not Proposal $0 Win Lose 0.05 0.95 $800,000 -$50,000 ? Expected value = 0.05 ($800,000) + 0.95 (-$50,000) = - $7,500
- 25. Solving the Tree Abandon Continue Not Proposal $0 -$7,500 ? Choose the branch with the best payoff
- 26. Solving the Tree Abandon Continue Succeed Fail 0.5 0.5 $0 Not Proposal -$200,000 Win Lose 0.9 0.1 -$250,000 $600,000 Not Proposal -$200,000 Win Lose 0.05 0.95 -$250,000 $600,000
- 27. Solving the Tree Abandon Continue Succeed Fail 0.5 0.5 $0 Not Proposal -$200,000 Win Lose 0.9 0.1 -$250,000 $600,000 Not Proposal -$200,000 -$207,500
- 28. Solving the Tree Abandon Continue Succeed Fail 0.5 0.5 $0 Not Proposal -$200,000 $515,000 -$200,000
- 29. Solving the Tree Abandon Continue Succeed Fail 0.5 0.5 $0 $515,000 -$200,000