Chapter 14 (Week 7)

Question 1

Game theory

Answer 1

set of tools that economists, political scientists, military analysts and others use to analyse players’ strategic decision making

Question 2

Game

Answer 2

interaction between players in which they use strategies

Question 3

Strategy

Answer 3

a battle plan that specifies the actions that a player will make

Question 4

Action

Answer 4

move that a player makes at a specific stage of a game

Question 5

Pay offs

Answer 5

benefits received by players from the game’s outcome

Question 6

Static games

Answer 6

Each player acts only once and the players
Firms have complete information about the payoff functions but imperfect information about rivals’ moves

Question 7

Normal form representation of a static game

Answer 7

Pay off matrix
Profit matrix

Question 8

Dominant strategy

Answer 8

a strategy that produces a higher pay off than any other strategy the player can use for every possible combination of its rivals’ strategies
A firm always uses its dominant strategy
Best response to all possible strategies that a rival might use

Question 9

Best response

Answer 9

the strategy that maximises a player’s payoff given its beliefs about its rivals’ strategies

Question 10

Cooperative games

Answer 10

game in which participants can negotiate binding contracts that allow them to plan joint strategies

Question 11

Non cooperative games

Answer 11

game in which negotiation and enforcement of binding contracts aren’t possible

Question 12

Mixed strategy

Answer 12

Strategy in which a player makes a random choice among two or more possible actions based on a set of chosen probabilities