Ch. 18 Game Theory Flashcards
Strategic Interaction
When your best choice may depend on what others choose and their best choice may depend on what you chose
Payoff Table
A table that lists your choices in each row, the other players choices in each column, and shows all outcomes and payoffs in each cell
Best Response
The choice that yields that highest payoff given others choices
Nash Equilibrium
An equilibrium in which the choice that each player makes us a best response tot he choices other payers are making
Checkmark Method
Put a checkmark next to each players best response and an outcome with a check from each player is a Nash equilibrium
Multiple Equilibria
When there is more than one equilibrium
Coordination Game
When all players have a common interest in coordinating their choices
Prisoners Dilemma
Shows how markets can deliver bad outcomes and also shows the temptation to take advantage undermining cooperation
Anti-coordination Games
When you best response is to take a different but complementary action to others
Focal Point
A cue from outside that helps you coordinate on a specific equilibrium
First-Mover Advantage
The strategic gain from an anticipatory action that can force a rival to respond less aggressively
Game Tree
Shows how a game plays out over time, the first move forming the trunk and then each subsequent choice branching out, so the final leaves show all possible outcomes
Look Forward
In games that play out over time, you should look forward to anticipate the likely consequences of todays choices
Reason Backward
Start by analyzing the last period of the game. Use this so you can see all the consequences of todays choice
Prune the Tree Method
Start by looking to the final period and highlight your rivals best response, then remove the options you rival would never choose
