(3) Dynamic Games: Sequential Moves

Question 1

What is the meaning of a dashed line?

Answer 1

The game is imperfect because the second player does not know the decision of the first player (e.g. simultaneous move game).

Question 2

What are sequential move games? What is different compared to simultaneous games?

Answer 2

• Decisions are made sequentially
• Second player can condition his action on the move of the first player
• Decisions are made before the game starts (P2 makes a decision for each possible action of P1)

Question 3

Subgame Perfect Equilibria - Definition

Answer 3

• Nash EQ that are based on credible actions in each subgame (strategies of the players must form a Nash EQ in any subgame)
• Eliminate Nash EQ with non-sensible moves in regions of the three that are expected to be reached with probability zero
• Find subgame-perfect Nash EQ through backward induction

Question 4

Subgame - Definition

Answer 4

• Game that is rooted in any decision node of the larger game
• Always starts in a singleton and includes all choices originating from it

Question 5

Dynamic Games - Definition

Answer 5

• Players move in sequence

Question 6

Infinite/Indefinite Repetition

Answer 6

• No backward induction
• Compare payoff streams from different possible own strategies given other player’s strategies
• Payoff Cooperation: c/(1-𝛿)
• Payoff Cheating: d + b*𝛿 / (1-𝛿)

Question 7

Imperfect Information Game - Definition

Answer 7

• At least one information set contains more than one node

- Player does not know the action of the previous player in this informations set

Question 8

Can simultaneous games be perfect games?

Answer 8

No simultaneous games are never perfect games.

Question 9

Can sequential games be perfect games?

Answer 9

Yes sequential games can but must not be perfect games.