Game Theory: Conflict and Co-operation

Question 1

Game Theory

Answer 1

A branch of Economics/Maths that studies strategic interactions.

Question 2

Game

Answer 2

Game: a description of a social interaction which specifies…
1. The players: Who is interacting with whom
2. The feasible strategies: Which actions are open to the players.
3. The information: What each player knows when making a decision
4. The payoffs: what outcomes will be for each of the possible combinations of actions.

Question 3

One-Shot Game

Answer 3

when the players will interact just once. Also happens simultaneously

Question 4

Best response

Answer 4

the strategy that will give a player the highest payoff, given strategies the other chooses.

Question 5

Dominant Strategy

Answer 5

Actions that yield the highest payoffs for a player.

Question 6

Dominant strategy equilibrium

Answer 6

The outcome when both players pursue with their dominant strategy.

Question 7

Invisible hand game

Answer 7

A game where the dominant strategy equilibrium leads to the highest payoffs for each player. Guided by ‘an invisible hand.’

Demonstrates how individual self-interest can lead to socially beneficial outcomes in a free market economy.

Question 8

Prisoners’ dilemna

Answer 8

A game where the payoffs of the dominant strategy equilibrium are actually less than the payoffs if neither player decided to play their dominant strategy.

Question 9

Comparison between Prisoners’ dilemna and Invisible hand

Answer 9

That the pursuit of self-interest can lead to socially beneficial outcomes for society, but it can also lead to outcomes in society that nobody would endorse.

Question 10

The ultimatum game

Answer 10

The ultimatum game involved 2 players, the proposer and the responder.
The proposer is given a sum of money and has to decide an amount to split with the proposer. The proposer can either:
agree to the split
reject and neither gets the money

When you add more than one responder, the split goes lower due to the increased competition.

Question 11

The public goods game

Answer 11

A group of people each get money.
They can choose to keep the money or put some/all/none in a shared pot.
The amount of money gets multiplied by a scale factor > 1 and then redistributed equally to everyone

While everyone benefits if everyone contributes, the dominant strategy is to not contribute.

Question 12

Nash Equilibria

Answer 12

The best response given other players’ strategies, where no player has an incentive to deviate unilaterally.

In economic interactions, there is often not a dominant strategy equilibrium therefore we use the Nash equilibrium to predict the outcome.

Question 13

Nash Equilibria and the Prisoners’ Dilemna

Answer 13

All dominant strategy equilibria are Nash Equilibria but not all Nash Equilibria are dominant strategy equilibria