Chapter 10 Flashcards
the decision problems that you face in real life have an:
interactive or strategic nature. This means that whatever happens depends not just on what you do but also on what other people do.
When are you said to be playing a game?
whenever you face a decision problem in which the final outcome depends not just on your action, and on whatever state of the world obtains, but also on the actions of at least one other agent.
The agents
involved in games are called
players.
What is a strategy?
is a complete plan of action that
describes what a player will do under all possible circumstances
how can we represent a game?
payoff matrix
payoff matrix
A payoff matrix is a table representing the payoffs of the players for each possible combination of strategies.
strategy profile
a vector of strategies, one for each player.
What is analytical game theory built around?
Nash equilibrium
Nash Equilibrium
A Nash equilibrium is a strategy profile such that each strategy in the profile is a best response to the other strategies in the profile.
pure coordination game
a game in which the players’ interests are perfectly aligned.
impure coordination game.
players benefit unequally from particular equilibrium
When is outcome X said to Pareto dominate another Y.
An outcome X is said to
Pareto dominate another Y if all players weakly prefer X to Y and at least one
player strictly prefers X to Y.
Pareto optimal
when Outcome it is not Pareto
dominated by any other outcome.
game theorists refer to non-binding verbal agreements as:
cheap talk.
How to find equilibrium of a repeated game?
we start at the end and use a
procedure called backward induction.