Game theory Flashcards
What is strictly dominant strategy
a strategy that guarantees a strictly higher payoff than any other strategy, independently of what the other player is doing
What is Pareto efficiency
the competitive market determines a Pareto efficient amount of output b/c at q* the price that someone willing to pay to buy an extra unit of the good is equal to the price that someone must be paid to sell an extra unit of the good
it is impossible to make one agent better off without making the other agent worse off
What is the strictly dominated strategy
a strategy is strictly dominated if there exists another strategy, that guarantees a strictly higher payoff, independently of what the other player is playing
What is best response
a strategy that guarantees the highest payoff given the strategy played by the other player
What is Nash equilibrium
a profile of strategies for all the players, such that the strategy played by the players guarantees the highest payoff, given what the other players are doing
What is the formal definition of Nash equilibrium
a nash equilibrium is a profile of strategies (s1, s2) such that”
u1 (s1, s2) ≥ u2 (s1, s2) for all s1 ≠ s1*
u2 (s1, s2) ≥ us (s1, s2) for all s2 ≠ s2*
What is mixed strategy
it specifies the probability with which a player will play each of the (pure strategies)
What is Nash Theorem
A NE in mixed strategies always exists
What is the game of entry deterrence
in the interest of the firms in the industry to try to prevent such entry
