Chapter 12 Flashcards
What is game theory?
This is the study of strategic interaction between two or more economic actors
What is a strategic decision?
This is an action made based on the anticipation of the actions of others
What are simultaneous games?
Games in which participants choose their actions at the same time without knowing the strategies and choices of the other party.
What are repeated games?
These are series in which players play the same simultaneous game over and over
What are sequential games?
games where one player moves first and other players observe this before decision making.
What are players?
these are participatns in an economic game who must decide on actions based on the actions of others
What is strategy?
This is the plan of players for the game. This usually depends on what you think other parties will do.
What are payoffs?
These are outcomes the players will receive from playing the game
What is optimal strategy?
These are the actions that have the highest expected payoff.
What is a dominant strategy?
This is a winning strategy for a player, regardless of her opponent’s strategies
What is a dominated strategy?
This is a losing strategy for a player, regardless of their opponents’ strategies.
What is a payoff matrix?
This is a table that lists the players, strategies and payoffs of an economic game.
What is a normal form?
This is a common organization of an economic game into its players, strategies and the payoffs in the payoff matrix
What is a pure strategy?
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.
What is a mixed strategy?
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)
What is a maximin strategy?
This is a strategy in which the player minimized exposure to loss. It maximizes its minimum possible outcome.
What is an extensive form or decision three?
This is a representation of a sequential game that shows both the choice and timing of players’ actions.
What are strategic moves?
These are actions taken early in the game to influence the ultimate outcome in a way that benefits the player.
What is a noncredible threat?
This is a threat that is not rational for the players in the game to take action on. It is an empty threat
What is a side payment?
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.
What is credible commitment?
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.
