Chapter 12

Question 1

What is game theory?

Answer 1

This is the study of strategic interaction between two or more economic actors

Question 2

What is a strategic decision?

Answer 2

This is an action made based on the anticipation of the actions of others

Question 3

What are simultaneous games?

Answer 3

Games in which participants choose their actions at the same time without knowing the strategies and choices of the other party.

Question 4

What are repeated games?

Answer 4

These are series in which players play the same simultaneous game over and over

Question 5

What are sequential games?

Answer 5

games where one player moves first and other players observe this before decision making.

Question 6

What are players?

Answer 6

these are participatns in an economic game who must decide on actions based on the actions of others

Question 7

What is strategy?

Answer 7

This is the plan of players for the game. This usually depends on what you think other parties will do.

Question 8

What are payoffs?

Answer 8

These are outcomes the players will receive from playing the game

Question 9

What is optimal strategy?

Answer 9

These are the actions that have the highest expected payoff.

Question 10

What is a dominant strategy?

Answer 10

This is a winning strategy for a player, regardless of her opponent’s strategies

Question 11

What is a dominated strategy?

Answer 11

This is a losing strategy for a player, regardless of their opponents’ strategies.

Question 12

What is a payoff matrix?

Answer 12

This is a table that lists the players, strategies and payoffs of an economic game.

Question 13

What is a normal form?

Answer 13

This is a common organization of an economic game into its players, strategies and the payoffs in the payoff matrix

Question 14

What is a pure strategy?

Answer 14

This is a strategy in which the player chooses the particular action with certainty. This requires two checks in the box for a Nash Equilibrium.

Question 15

What is a mixed strategy?

Answer 15

This is a strategy in which the player randomized her actions. The only mixed strategy that creates an equilibrium is one where you get the same payoff regardless of what you choose (indifferent)

Question 16

What is a maximin strategy?

Answer 16

This is a strategy in which the player minimized exposure to loss. It maximizes its minimum possible outcome.

Question 16

What is an extensive form or decision three?

Answer 16

This is a representation of a sequential game that shows both the choice and timing of players’ actions.

Question 17

What are strategic moves?

Answer 17

These are actions taken early in the game to influence the ultimate outcome in a way that benefits the player.

Question 17

What is a noncredible threat?

Answer 17

This is a threat that is not rational for the players in the game to take action on. It is an empty threat

Question 17

What is a side payment?

Answer 17

Type of bribe that influences the outcome of a strategic game. This side payment doesn’t actually need to materialize, it just needs to be large enough to make the lower-paying choice more attractive.

Question 18

What is credible commitment?

Answer 18

This is a choice that guarantees a player will take a particular future action if certain conditions occur that transform the game. This could be huge costs if it doesn’t choose the for them best alternative.