Compromised payoffs in the presence of incomplete information for supply chain applications

People in situation of conflict are often found to engage based on their own understanding of expected utility from the said conflict. Should people behave completely rational, they would cease to engage the moment there is visibility on one’s earnings from the conflict. However, in reality the observable patterns and trends are different given that not always are people engaging rationally. What makes this complex is the fact that many a times a person does not have the required information to be able to engage in a fair play. Distortion in communication and presence of irrationality contribute to the uncertainty present in a game. These are abundantly observed in multi agent interactions such as management of supply chains where information forms a crucial link for the success of the supply chain. This paper proposes a model for non-cooperative interaction between agents who are operating with incomplete information about their opponents. The proposed game models the belief system of the players regarding their opponent as a Markov chain and in doing so incorporates uncertainty in the form of entropy of information. The proposed model is illustrated using a single manufacturer, single supplier game. The results show that in the presence of uncertainty, players are willing to tradeoff a part of their winnings to accumulate as much information about the opponent as they seem satisfactory. This tradeoff is characterized by the fact that the players would have been worse off in the absence of this accumulated information.