Ch. 18 - Game Theory and Strategic Choices Flashcards
What are strategic interactions?
When your best choice may depend on what others choose, and their best choice may depend on whatyou choose
What is a payoff table?
A table that lists your choices in each row, the other player’s choices in each collumn, and so shows all possible outcomes, listing the payoffs in each cell
What is the best response?
The choice that yields the highest payoff given the other player’s choice
What are the 4 steps to making good strategic decisions?
- Consider all possible outcomes
- Thinking about the “what ifs” separately
- Play your best response
- Put yourself in soeone else’s shoes
What is a Nash equilibrium?
An equilibrium in which the choice that each player makes is a best response to the choices other players are making
What is the check mark method?
If you put a check mark next to each player’s best response, then an outcome with a chechmark from each player is a Nash equilibrium
What is a coordination game?
When all players have a common interest in coordinating their choices
What is an anti-coordination game?
When your best response is to take a different (but complimentary) action to the other player
What is a focal point?
A cue from outside the game that helps you coordinate on a specific equilibrium
What are the 3 steps to solving coordination problems?
- Communication
- Focal points, cultures & norms
- Laws and regulation
What is the first-mover advantage?
The strategic gain from an anticipatory action that can force a rival to respond less aggressively
What is a game tree?
Shows how a game plays out over time, with the first move forming the trunk, and then each subsequent choice branching out, so the final leaves show all possible outcomes
What does it mean to look forward and reason backwards?
Look Forward: In games that play out over time, you should look forward to anticipate the likely consequences of your choices
Reason Backwards: Start by analyzing the last period of the game. Use this to figure what will happen in the second-to-last period, and keep reasoning backward until you can see all the consequences that follow from today’s decision
What is the prune the tree method?
A method for solving game trees; start by looking forward to the final period & highlighting out your rival’s best responses, then prune the options the rival would never choose - the “dead leaves” - off your game tree
What is a one-shot game?
A strategic interaction that occurs only once
