game theory

Question 1

What are the rationality assumptions for game theory?

Answer 1

• Players are trying to maximize profits
• Players are selfish and only care about their payoffs
• Players are perfect calculators

Question 2

What are the common knowledge assumptions for game theory?

Answer 2

• Players know the rules of the game

- Players know that other players know the rules of the game

Question 3

Define Game Theory

Answer 3

A set of techniques that help in the analysis and understanding of game situations that can predict the logical outcome of the game

Question 4

What is the difference between a “move” and a “strategy”

Answer 4

Move: An action taken by a player at some point during the game

Strategy: An algorithm for playing the game, telling a players what to do for every possible situation throughout the game

Question 5

What is the payoff and what does it depend on?

Answer 5

• The cost/benefit that each player gets from each possible outcome of the game
• Payoff depends on player’s action AND other player’s action

Question 6

What does a payoff matrix show?

Answer 6

The outcome of each player, depending on the actions of both [players]

Question 7

Define Nash Equilibrium

Answer 7

any combination of players’ strategies in which each player’s strategy is his or her best response, given the other players’ choice

Question 8

What is the prisoner’s dilemma characterized by (two things)?

Answer 8

1. Each player has an incentive to choose a strategy that benefits himself at the other player’s expense
2. When both players act in this way (do not cooperate), both are worse off than if they had acted cooperatively