'Fifth Element of Game Theory Essay\r'

'As each of the competing companies watchfully study the moves do by the others in the homogeneous(p) attention they in all belong to, they sometimes wipe issue up deciding to just do the best they can to win the biggest get by in the market place †without spending more than time focusing of the others. This direction, when taken by the constancy players, terminuss to the occurrence of â€Å"Nash vestibular sense. ” (Economics 11th variation by Richard G. Lipsey & Paul N. Courant, UK: HarperCollins College Publishers, 1996)\r\nThe preceding(prenominal) graph illustrates the Nash balance wheel and the optimum result that it leads to (Osborne, An Introduction to zippy Theory). As unlike to how badly things may end up for the competing players, Nash equilibrium brings in profitable results for everybody. As opposed to getting stuck with the â€Å"prisoner’s dilemma” or the â€Å"pride racy”, companies in this scenario have individual ly opted to contract to the strategies that they believe leave alone draw and result hand them the market dominance that will secure their place as the industry leader.\r\nEffects of residue Equilibrium brings ease to the economy †whether long- or short-lived. As a temporary phase that may or may non be maintained, equilibrium occurs when in that location is no tendency for lurch in the decisions of the economic entities regarding their products and services, the price and leger that they will supply, and the occupy segment that they will target. (Lipsey & Courant 510) Equilibrium recognizes in antithetic forms as prevailing circumstances vary.\r\nâ€Å"In the macroeconomic goods market, equilibrium occurs when planned join expenditure is equal to aggregate output. ” Thus, the volume that the suppliers has made available in the market is the same volume that buyers will actually buy. Meanwhile, equilibrium in the monetary markets is accomplish when the supply of money is equal to the demand for money (Case & Fair 67). In this setting, qualified borrowers find that there argon loans that they can avail.\r\nIn the same setting, financial institutions argon able to use in their operations the idle cash in their coffers †they issue loans to maximize their income from lending activities. Equilibrium has been thoroughly explored as a idea and has been attributed with all kinds of applications arising from distinct circumstances and conclusions. It is non surprising that there evolved a specialised branch of game theory called â€Å" command Equilibrium Theory” which is widely employ in analyzing the public and private sectors of the economy.\r\n(David Levine website) Freddie macintosh in the Game Theory Freddie mac never had to ward off numerous competitors in the industry. As one of the ii giants â€the other one being Fannie Mae †table service the country’s secondary mortgage market, the gamin g area has turned out to be definitely spacious. Indeed, there is the wide USA as the territory to be serviced and there come the banks to take do of dealing with them †then there come Freddie mack, Fanny Mae and Ginny to pour in the essential financial resources.\r\nWith Freddie mac and Fannie Mae issuing or guaranteeing a total of $5. 4 meg in outstanding mortgage debt, these ii companies practically make up the good mortgage industry. Furthermore, they are equipped with all the needed ammunition for winning: Fannie Mae and Freddie Mac have indisputable strong points. collect to the implied backing of the United States government, they enjoy virtually unlimited access to the capital markets at funding costs that are at a lower place market. They pay no local taxes, wholly national.\r\nEach has enjoyed tremendous growth and profitability. As the biggest issuers of mortgage-backed securities and corporate securities in the world, the biggest buyers and hedgers of th e securities in the world, and, not least, the source of liquidity for more than 75% of conventional and conforming home mortgages broad in this country, it could be argued that Fannie Mae and Freddie Mac are about as central to the American capital markets as the Treasury Department. (Annaly webstie) (Source: valet de chambre socialist website)\r\nIndeed, with their coveted roles as providers of a continuing supply of money for the banking institutions sedulous in retail lending to the multitudes, Freddie Mac and Fannie Mae own the game. As competitors offering the same products and services, enjoying the same rare privileges and dealing with the same clients, Freddie Mac and Fannie may have systematically been like identical twins †though Fannie May turns out to be decades older than Freddie Mac. With each one of them keen on beating the other, the strategies and packages they resorted to turned out to work for both of them, at least during the well-to-do growth years of the industry.\r\nConsistent with the Nash equilibrium concept, a report that came out in the Spring of 2002 showed that fully one-half of 2002’s 1. 2% gain in reliable GDP growth was brought on by the housing activities across the country. (Annaly website) Freddie Mac and Fannie May have been playing the Nash Equilibrium game. In such a game as theirs, â€Å"players play the best they can precondition their beliefs, and they have learned all there is to learn about their opponent’s play” (David Levine website). Works Cited Osborne, Martin. An Introduction to Game Theory. Oxford University Press, 2002. Lipsey, Richard & Courant, Paul.\r\nEconomics 11th Edition. overbold York: HarperCollins College Publishers, 1996. Case, Karl & Fair, Ray. Principles of Economics 8th Edition. prentice Hall, 2007. Levine, David. What is Game Theory? Department of Economic, UCLA. 29 October 2008 <http://levine. sscnet. ucla. edu/general/whatis. htm#General%20equili brium%20theory> Annaly. com Website. FAQs on Fannie Mae and Freddie Mac, 29 October 2008 <http://www. annaly. com/ie/ffmfaq. html> World Socialist Web Site. The Importance of Fannie Mae and Freddie Mac. 29 October 2008 <http://www. wsws. org/articles/2008/jul2008/debt-j25. shtml\r\n'