lecture 8 Flashcards
sometimes social coordination would lead to a better payoff than what is achieved with self-interest pursuit.so how to coordinate?
- altruism → willingness to bear costs to benefit others
- government policies → taxes or subsidies directed to change payoffs
- institutuions (formal or informal) that take dicisions based on the “common good”
how to solve repeated games?
when the number of repetition is known by the players, we use backwards induction
what is backwards induction?
- iterated process to determine a sequence of optimal actions
- solve on repetition at a time
- start from de last repetition of the game, and identify what woud be the optimal strategy at the last point of the game
- using this information, determine what would be the optimal strategy ate the second-to-last time that the game is played
- keep going backwards until the first round of the game
what happens with the games with a unknown number of repetitions?
they end up with the same
equilibrium strategy as one-shot games
there is the possibility of sustaining the cooperative outcome:
- tit-for-tat strategy → each participant mimics the action of the other player after cooperating in the first round
what is a public good?
good that is:
- non-rival in consumption→ use by one person does not inhibit use by others
- non-excludable→ cannot exclude from use
what is a sequential game?
a game in which players do not choose their strategies at the same time, and players that choose later can see the strategies already chosen by the other player.
Framework:
* Game tree→ a graphical representation of a dynamic game
* Nodes (except final)→ decision makers have to make a choice
* Edges→ actions at the decision nodes
* Final nodes→ payoffs
when the games are played sequentially, how can you solve them?
using backwards induction
- start at the last node
- at each node, the player picks the action that maximixes her own payoff
- only consider actions on the optimal path
- threats become credible
