Chapter 12

Question 1

strategy

Answer 1

the plan of action a player takes in an economic game

Question 1

player

Answer 1

participant in an economic game who must decide on actions based on the actions of others

Question 2

payoff

Answer 2

outcome a player receives from playing the game

Question 3

player’s optimal strategy

Answer 3

action with the highest expected payoff

Question 4

dominant strategy

Answer 4

the winning strategy for a player regardless of opponents’ strategies

Question 5

dominated strategy

Answer 5

the losing strategy of a player regardless of opponents’ strategy

Question 6

payoff matrix

Answer 6

table that lists players, strategies, and payoffs in an economic game

Question 7

normal form

Answer 7

the common organization of an economic game into its players, strats, and payoffs in the payoff matrix

Question 8

pure strategy

Answer 8

strategy where the player chooses an action with certainty given the action of their partner

Question 9

mixed strategy

Answer 9

strategy in which the player randomizes their actions

Question 10

Can collusions happen in a finitely repeated game?

Answer 10

No - this is because both players know that each other will defect in the last round, so there’s no incentive to cooperate and they’ll both choose to defect in the 2nd to last. Similarly, both think they’ll probably defect in the 2nd to last and have no incentive to cooperate, so they’ll both defect in the 3rd to last round, and so on. Even if there’s promises to collude and both cooperate at the beginning, it is not possible.

Question 11

Can collusions happen in infinitely repeated games?

Answer 11

Yes - since there’s no set end to the game (since it’s infinite), both players can cooperate in equilibrium forever. The only way a collusion wouldn’t be honored is if a player employs a grim trigger/grim reaper strategy

Question 12

Grim trigger / grim reaper strategy

Answer 12

cooperative play in an infinitely repeated game ends permanently when one player cheats/defects/betrays the other. Once the player betrays the other one and the other one finds out, the other one will rat out that player every time they get arrested forever

Question 13

Tit for tat strategy

Answer 13

strategy where the player mimics the opponent’s prior period action in each round

Question 14

Extensive form / decision tree

Answer 14

representation of a game that shows both the choice and timing of players’ actions

Question 15

Sequential Games

Answer 15

Games where one player moves first, other players observe before making a decision. First mover doesn’t necessarily always have the advantage unless they are in a stackelberg.

Question 16

strategic move

Answer 16

action taken early in game that favorably influences game outcome

Question 17

noncredible threat

Answer 17

a threat that’s not rational for player to follow through on

Question 18

credible commitment

Answer 18

choice/ restriction of choices that guarantees a player will take a particular future action if certain conditions occur