Introduction
Who would have thought that China, the 2nd largest economy of the world, has faced a lot of issues with its modern estate industry and the tool that the people in the industry use to tackle this problem is the very thing we have learned in CSCC46—Game Theory. This study conducted by Rongyi Lai provides an overview of game theory to the games played between the government, estate developers, and buyers and concludes with the fact that the developers are the ones that need to meet the expectations of the buyers and must lower the margin costs of developing. Game theory has proved to be a very useful tool in the decision-making process for the estate industry which is why I found this topic interesting and wanted to write about it in the first place because it shows that through game theory and its analysis you can make one of the biggest decisions in your life of purchasing an estate based on the game that is given to you.
Data & Analysis
In the study we see how a game between estate developers and buyers plays out. Of course, the developer wants to get the highest price possible from the buyer and the buyer on the other hand wants to buy the estate on the cheapest price they can, therefore, in this game the estimations of the price given by the developer and the psychology and expected price of house buyers are important factors that affect the game.
Above we see the payoff matrix developed between a developer and buyers. The analysis of this matrix shows that there is a pure Nash equilibrium when Estate developer chooses to lower the price and Buyer is advised to enter the markets since this gives both players the biggest payoffs and results showed that if the developers maintained a high price, their interest would be negatively impacted, and if they lowered the price, it would satisfy the house buyers expectations. As we know from CSCC46, this is a pure Nash equilibrium as these two strategies are the best responses to each other.
In addition, another game was shown between competitors—2 estate developers. This game is more interesting to look at since we are now looking at two competitors in the same industry who want to have all the benefits and maximize profits for themselves. The factors in this game were concluded to be marginal cost, number of estate developers, and scale of estate market.
After analyzing this payoff matrix, it is concluded that there are two pure Nash equilibrium, the first being that both the estate developers choose Keep the price and the second is both choosing to lower the price as these two sets of strategies are best responses to one another as learned in class. The analysis for this game is interesting in the fact that both players decide to cooperate with one another to gain more payoffs.
Conclusion
Overall, it is exciting to see that the concepts we learned in CSCC46 about game theory, payoff matrix, and Nash equilibrium can be showcased and used as an effective tool in one of the most important decisions a person can make in their life and that is buying an estate. A simple tool such as game theory can help you make one the biggest decisions of your life. The study clearly showed that game theory can be used as a tool for China to solve the problems that the country faces with in their modern estate industry and that is the problem that is being solved with this topic.
References
Lai, R. (2021). Game theory approaches for the analysis on estate market in China. Clausius Scientific Press. Retrieved November 24, 2022, from https://clausiuspress.com/conferences/LNEMSS/EMCG%202021/Y0661.pdf