game theory

Question 1

what is the prisoners dilemma

Answer 1

a game theory paradox that illustrates how two rational individuals can choose not to cooperate, even when it would be in their best interest to do so

Question 2

what is a dominant strategy

Answer 2

in reaction to the action of firm a, firm b will choose the same strategy

Question 3

define nash equilibrium

Answer 3

a strategy that when all players use this strategy, no player can obtain higher profits using a different strategy

Question 4

can there be multiple nash equilibriums

Answer 4

yes

Question 5

what are the steps to determining a dominant strategy

Answer 5

1) determine each firms best response to any given strategy of the other firm
2)check whether any pairs of strategies are best responses for both firms

Question 6

what is a mixed strategy

Answer 6

when a player chooses actions according to the probability it assigns to each action

Question 7

what is the formula for working out the probability and therefore the outcomes

Answer 7

P(R1) + Po (1-R1)
P = payoff for that action
R1 = a response to the action
Po = the alternate payoff for the action taker should the second mover choose the other action