Class 8: Game Theory Flashcards
What is game theory?
science of strategy,
anticipating how others may respond to your actions
you can influence what other people are doing, not programmed
What is the nash equilibrium?
In a nash equilibrium, no one is able to improve their own situation by changing strategy, each person is doing as well as they possibly can, even if that does not mean the optimal outcome for society
tldr: people are by and large going to do what is best for them, even if its not optimal for everyone
What is the implication of the prisoner’s dilemma?
w/ imperfect info and incentives, you could end up trapped
What does game theory assume?
incorrectly assumes that humans are always rational
Define Dominant Strategy:
The strategy which earns the player a larger payoff than any other, regardless of what the other party does
Define a Sequential Move Game:
game where the players take turns, and additional information/insight is gained as time progresses
Define a simultaneous move game
each player acts independently, unaware of the other actors action
Define a Static Game
Game with only 1 move or decisions, one and done
Dynamic game
game with multiple interactions over time
Representative Bias
Generalizing about a situation based on only a few observations of similar situations in the past
Overconfidence
overestimating own capacities and likelihoods of success, while underestimating others
Confirmation Bias
Seeking information which confirms what a decision maker already believes
Endowment effect
overvaluing something because you own it
What are one of the most overlooked aspects to BU strategy formation?
competitor reactions
What is the difference between BU strategy and firm strategy?
BU: how to win
Firm: where to play
