Game Theory

Question 1

The most important tool for analysis of oligopolistic competition is…?

Answer 1

Game theory

Question 2

What is game theory?

Answer 2

A set of tools to analyse strategic decision/making of rational individuals

Question 3

What are payoffs?

Answer 3

Benefits received by players from a game’s outcome

Question 4

What is a payoff function?

Answer 4

Specifies each players payoff as a function of the actions chosen by all players

Question 5

Payoffs in terms of firms or individuals?

Answer 5

Profits for firms or incomes for individuals

Question 6

What is a dominant strategy in game theory?

Answer 6

A strategy that produces a higher payoff than any other strategy for every possible combination of the rivals strategies

• like having a “best move” that makes you better off, no matter what others do. It’s the strategy that’s a clear winner for you, regardless of what choices others make in the game.

Question 7

Draw me a game theory matrix

Question 8

What is the mash equilibrium?

Answer 8

A set of strategies such that, when all players choose this strategy, no player can obtain a higher payoff by choosing a different strategy

Question 9

To find a Nash equilibrium we look for ?

Answer 9

Strategies where every player is using a best response to rivals strategies

Question 10

What is the best response strategy?

Answer 10

A player’s best response identifies the optimal strat for every possible combination of strategies from other players