65: Game Theory Flashcards
game theory
the study of behavior in situations of interdependence
payoff
reward received by a player in a game, such as profit earned by an oligopolist
prisoner’s dilema
1) each player has an incentive, regardless of the others actions, to cheat
2) if both cheat, they are worse off than if neither did
dominant strategy
the action that is best for one player regardless of the others actions
Nash equilibrium
the result when each player chooses the dominant strategy, or when each player chooses the option that maximizes profits given the action of the other
strategic behavior
when the firm attempts to influence the future behavior of other firms
tit for tat
a strategy of playing cooperatively at first, then doing whatever the other player did in the previous period, thereby rewarding cooperative behavior and punishing non-cooperative behavior
tacit collision
when firms expect to be competing for a long time, and thus conclude that behaving cooperatively is the most profit maximizing strategy (w/o formal collusion)