CH.18 Flashcards
What is Game theory ?
Game theory is the study of decision-making where your choices depend on others and others depend on your choices. This could be applied in collaborations or completion
Applying the interdependence principle
Four steps to strategic decision-making
- Consider your best outcomes:
- Think about what ifs separately
- Play your best response
- Put yourself in their shoes
Nash equilibrium
Is a set of strategies one for each player such that no player has the incentive to change his strategy given what the other players are doing.
Multiple equilibria
When there is more than one possible equilibrium
Focal point
It is something that could help a decision be made that would lead to an equilibrium
cultures could influence focal point
Anti-coordination game
An anti-coordination game occurs when the best outcome involves taking a different, but complementary action to the other player.
First-mover advantage
Is a benefit gained by making the first move in a competitive market
consistency
Second-mover advantage
Is the benefit gained by being the second to act in a competitive situation
flexibility
Collusion
Rivals agree to stop competing (e.g., set high prices) to earn higher profits. This is illegal as it harms consumers.
finitely Repeated Games
if the game has a fixed end
Indefinitely Repeated Games
If the end isn’t known
The Grim Trigger Strategy
- Cooperate if everyone else cooperates.
- Defect forever if anyone defects.
Prune the tree method
A technique for simplifying a game tree by eliminating obviously inferior strategies.
Reason backward
A strategy in repeated games where players anticipate future interactions to influence present decisions.
Sequential game
where you see the action of your opponent before you choose your action.
