Chapter 3 Flashcards
Static games of complete information, Pareto efficiency, dominance
What are the three key components of static games of complete information?
Actions, outcomes, and utility functions.
What is the difference between an action and a strategy in game theory?
An action is a specific move, while a strategy is a plan of action that may include contingencies.
What is the normal-form representation of a game?
It is defined by sets of strategies for each player and utility functions that assign payoffs to outcomes based on the strategies chosen.
What does “common knowledge” mean in the context of game theory?
Common knowledge means all players know the rules, actions, outcomes, and preferences of others, and they also know that everyone else knows this, recursively.
What is a bi-matrix in game theory?
A bi-matrix represents a two-player game in a table format, where each cell shows the payoffs for both players based on their chosen strategies.
In the “Battle of the Sexes” example, what are the players’ preferences?
Ann prefers the romance movie, Brian prefers the sci-fi movie, but both prioritize being together over watching their preferred movie alone.
What is Pareto efficiency?
A strategy is Pareto efficient if no other strategy can make at least one player better off without making another worse off.
What is a strictly dominated strategy?
A strictly dominated strategy is one that is always worse than another strategy for a player, regardless of the strategies chosen by others.
What is the “iterated elimination of strictly dominated strategies” (IESDS)?
IESDS is a process where strictly dominated strategies are removed step by step to simplify the game and potentially find its outcome.
Why is the Prisoners’ Dilemma considered a dilemma?
The Prisoners’ Dilemma is a dilemma because the rational choice for both players (to confess) results in a worse outcome for both compared to if they had cooperated and stayed silent.
