Game Theory

Question 1

What is the definition of game theory?

Answer 1

Game theory studies strategic interactions among rational decision-makers, each aiming to maximize their utility.

Question 2

Who are the players in game theory?

Answer 2

Players are individuals or entities making decisions.

Question 3

What are strategies in game theory?

Answer 3

Strategies are plans or actions available to players.

Question 4

What are payoffs in game theory?

Answer 4

Payoffs are rewards or penalties received based on chosen strategies.

Question 5

What types of games are there in game theory?

Answer 5

Games can be cooperative (players form coalitions) or non-cooperative (each player acts independently).

Question 6

What are the elements of a game?

Answer 6

The elements of a game include a set of players, a set of actions or strategies, and a payoff or utility over outcomes for each player.

Question 7

What assumptions are made for games in game theory?

Answer 7

Assumptions include that the payoff is the motivation for the player and that there is no continuation for the game.

Question 8

What is the difference between simultaneous and sequential games?

Answer 8

In simultaneous games, players choose actions without knowing the others’ choices (e.g., Prisoner’s Dilemma). In sequential games, players make decisions one after another, with knowledge of previous actions (e.g., chess).

Question 9

What is a zero-sum game?

Answer 9

In zero-sum games, one player’s gain is exactly another’s loss.

Question 10

What is a non-zero-sum game?

Answer 10

In non-zero-sum games, players’ interests are not completely opposed; cooperation may be possible.

Question 11

What is a dominant strategy?

Answer 11

A dominant strategy is a strategy that yields the highest payoff for a player, no matter what the others do.

Question 12

What is Nash Equilibrium?

Answer 12

Nash Equilibrium is a situation where no player can improve their payoff by unilaterally changing their strategy.

Question 13

What is the difference between mixed and pure strategies?

Answer 13

A pure strategy is when a player consistently chooses one action, while a mixed strategy involves randomizing over multiple actions, assigning probabilities to them.

Question 14

What is IESDS?

Answer 14

IESDS is a technique for solving games that involves iteratively removing dominated strategies.

Question 15

What is the Prisoner’s Dilemma?

Answer 15

In the Prisoner’s Dilemma, two individuals can either cooperate or betray each other, with betrayal being the dominant strategy.

Question 16

What is the Battle of the Sexes?

Answer 16

In the Battle of the Sexes, two players prefer different outcomes but would rather coordinate than end up with no coordination.

Question 17

What is Matching Pennies?

Answer 17

Matching Pennies is a zero-sum game where one player’s gain is the other’s loss, with no pure strategy equilibrium but a mixed strategy equilibrium existing.

Question 18

What is the normal (strategic) form of a game?

Answer 18

The normal form describes games through a matrix showing the payoffs for each strategy combination, useful for simultaneous games.

Question 19

What is the extensive form of a game?

Answer 19

The extensive form is a tree diagram that captures the order of moves in sequential games, highlighting decision points and possible strategies.

Question 20

What is Pareto Optimality?

Answer 20

Pareto Optimality is a situation where no player can be made better off without making another player worse off.

Question 21

What is Subgame Perfect Equilibrium?

Answer 21

Subgame Perfect Equilibrium is relevant in sequential games and refines Nash equilibrium by ensuring strategies form a Nash equilibrium in every subgame.

Question 22

What is a minimax strategy?

Answer 22

In zero-sum games, a minimax strategy is where a player minimizes their maximum possible loss.

Question 23

What is backward induction?

Answer 23

Backward induction is used in sequential games, where players start from the end of the game and reason backward to determine optimal strategies.

Question 24

What is a perfect information game?

Answer 24

It is a game in which players move sequentially,
and know the full history of play when it is their turn to move

Question 25

What is sequential rationality?

Answer 25

It is when a player moves and maximizes their expected utility conditional on the current history

Question 26

What is Hold-up?

Answer 26

The hold-up problem is a situation where two parties may be able to work most efficiently by cooperating, but refrain from doing so because of concerns that they may give the other party increased bargaining power and thus reduce their own profits. When party A has made a prior commitment to a relationship with party B, the latter can ‘hold up’ the former for the value of that commitment. The hold-up problem leads to severe economic cost and might also lead to underinvestment.