CHAPTER THIRTEEN –GAME THEORY AND STRATEGIC PLAY

Question 1

What are the two fundamentally different kinds of economic analyses?

Answer 1

– Decision theory: agent optimizes against a fixed environment
– Game theory: agent optimizes in an environment that also features
interaction with other agents (strategic interaction)

Question 2

Game theory is the study of ____

Answer 2

strategic interactions

Question 3

Game Theory analyses situations in which…

Answer 3

Game Theory analyses situations in which behavior of economic
actors jointly determine outcomes such that there is room for
strategic interaction

Question 4

What are the elements of a game?

Answer 4

1. The players
2. The strategies
3. The payoffs

Question 5

Whats a payoff matrix?

Answer 5

Represents payoffs for each player for

each strategy

Question 6

Whats a dominant strategy?

Answer 6

One player’s best response, regardless

of what the other person does

Question 7

Whats a dominant strategy equilibrium?

Answer 7

When each strategy used is a dominant

strategy

Question 8

Whats a nash strategy?

Answer 8

If a player‘s strategy is the best response (in the sense of utility
maximization) given all other player‘s strategies, then this strategy is
a Nash strategy (or best response strategy).

Question 9

If all players play a Nash-strategy, this set of strategies constitutes a 
Nash equilibrium (NE).

Answer 9

If all players play a Nash-strategy, this set of strategies constitutes a 
Nash equilibrium (NE).

Question 10

What is backward induction?

Answer 10

Begins at the end of the game tree and asks players
to choose the utility maximizing action at each point
of the game