L15

Question 1

3 parts to a decision/game tree?

Answer 1

Nodes - represent each player’s turn to make a decision
Lines - represent decisions
Payoffs at end of each branch

Question 2

2 methods to find equilibrium in a sequential game?

Answer 2

1) Put into normal form and apply NE analysis (see notes don’t get)
2) Backwards induction: solves game by considering last possible choices in the game (see my notes for example)

Question 3

When won’t backwards induction yield a unique outcome?

Answer 3

When a player is indifferent between 2/more outcomes

Question 4

Advantage of backwards induction over method 1, and disadvantage of it?

Answer 4

More succinct and natural
BUT
not all NE will arise, only one will

Question 5

What is the subgame perfect equilibrium?

Answer 5

The NE obtained by backwards induction, since it is the only one that CAN be chosen

Question 6

Define information set? (simultaneous game in extensive form)

Answer 6

A set of nodes such that:

1) Every node in the set belongs to the same, one player
2) When the game reaches the information set, the player whose turn it is cannot differentiate between nodes within the information set

Question 7

How do we show a simultaneous game in extensive (tree) form?

Answer 7

Must loop/join with a dotted line the information sets in the game (see notes page 5)