Game Theory and Auctions Flashcards
Game Theory
Tool Kit - Strategic Decision Making
Non-Cooperative Game Theory
Studies adapted strategies of decision making in non-cooperative situations
Non-Cooperative Game Scenarios
Simultaneous or sequential decisions, Complete or Incomplete Information
What is a “Game?”
Mathematical representation of a strategic interaction with three parts: N- Agents, S-Strategies, P- Payoff to equal as Solutions
Solution of the Game
Equilibrium as a set of strategies predicts Players Behavior
Strategy
Given the actions players can take in the game (go left or right), a strategy is a full contingent plan that describes the player’s action at any given point in the game.
Payoffs
What people will obtain from the game
Strategic Form Games
Players move simultaneously or, if sequentially, players cannot observe the other players’ moves.
Equilibrium concepts:
1. Equilibrium in dominant strategies
2. Nash Equilibrium
Extensive Form Games
Players move sequentially
Equilibrium Concept:
Subgame-perfect Nash Equilibrium (look ahead and reason back)
Analyze Strategic Form Games
Use Payoff Matrices
Dominant Strategy
A strategy that a player would want to follow regardless of the other player’s behavior
Dominated Strategy
A strategy that a player would not want ot follow regardless of the other player’s behavior.
Best Response
A best response is one player’s best answer to an anticipated move by the other player
Nash Equilibrium
An outcome from which neither player would want to deviate, taking the other player’s behavior as given.
Strategies are mutually best responses to each other.
A set of strategies in which each player i’s strategy si is the best response to the strategies specified for everyone else.
