BU457 Chapter Notes - Chapter 9: Non-Cooperative Game Theory, Cooperative Game Theory, Management

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8 Oct 2014
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Fat chapter 9 an analysis of conflict. Understanding game theory: game theory models the interaction of two or more players, each player is assumed to maximize his or her expected utility. If manager decides to be honest and investor buys the shares, the utility payoffs will be 60 for investor and 40 for the firm. The answer is yes to the extent that gaap, full disclosure, and an ethical audit profession prevent distortion: nevertheless, it is quite possible for trust to be lost at any point in the game. A major reporting failure by the manager of another firm could cause the investor. Hiring the manager and putting up with him shirking: lower utility for the owner. Direct monitoring: a contract where direct monitoring is possible is called first-best, gives the best utility possible for both owner and manager, the first-best contract also has desirable risk-sharing properties, however, the first-best contract is frequently unattainable.

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