Module_01_strategic-games Flashcards
What is the definition of non-strategic decisions?
No impact on market outcomes and others’ well-being.
Examples of non-strategic decisions
Shopping on Amazon, walking in a park, installing a kitchen.
Example of a negative externality
Car use endangering cyclists
Example of a positive externality
Backyard garden providing habitat for birds
Example of a negative congestion effect
Car use making it harder for others to get about
Example of a positive congestion effect
Joining Facebook benefiting other users
What are strategic decisions?
Choices affecting others
Why anticipate others’ choices?
To maximize personal benefit
What is game theory?
Branch of mathematics
Name an example of game theory in personal interactions.
Driving your car
Give an example of game theory in market competition.
Coke vs Pepsi
What is the name of the game where competitors try to match each other’s prices?
Price Matching Game
What is the name of the game where two cars drive towards each other?
Game of Chicken
What is the name of the game where adding more roads to a network can slow down traffic?
Driving Game
What is the key idea of Non-cooperative Game Theory?
Best choice strategy
What is the equilibrium formed by the selection of strategies called?
Nash Equilibrium
What characterizes a Nash Equilibrium?
No unilateral deviation
What is a ‘no regrets’ equilibrium?
No agent regrets choice
What is it called when agents can commit to agreements?
Cooperative Game Theory
What is it called when agents cannot commit to agreements?
Non-Cooperative Game Theory
What may agents engage in if no enforcement mechanism exists?
‘Cheap talk’
How does the home team benefit in ice hockey?
Line-matching
What is the main theme of the Prisoner’s Dilemma?
Incentives to confess
What issue arises from the agents’ inability to cooperate?
Sub-optimal outcome
What is an example of the Prisoners’ Dilemma in competition between firms?
Boeing versus Airbus
What is an example of the Prisoners’ Dilemma in a bidding context?
House bidding
What dilemma arises from GHG emissions in climate change policy?
Incentives to avoid action
What is the ideal action for addressing climate change?
Collective action
Can international law force sovereign nations to act?
No
What can help ensure countries abide by agreements?
Import tariffs
What are some government incentives for unilateral mitigation?
Political platform, local pollution
What is the dominant strategy in the pricing variant?
LOW
What outcome do both firms get when they choose LOW?
Low payoff
What would be best for both firms if they could agree?
HIGH prices
Why is any agreement to collude unstable?
Cheating possible
How many Nash Equilibria are there in the Price Matching Game?
2
What is the outcome for consumers if firms effectively collude with high prices?
Not good
What is a key feature of games not resembling the Prisoner’s Dilemma?
No dominant strategy
What is the TREMBLING-HAND Nash Equilibrium?
Optimal choice with rival tremble
What is a maxi-min strategy?
Highest among lowest payoffs
When is a maxi-min strategy chosen?
Worst outcome as good as can be
What is the nature of strategies in the Coordination Game?
No Dominant Strategy
Can a cooperative outcome be achieved in a non-cooperative game?
Yes, but no guarantee
What is the First-Mover Advantage?
Responding to choices
What is the Second-Mover Advantage?
Responding accordingly
What is another name for the ‘Game of Chicken’?
GAME of CONFLICT
What is the goal of the ‘Game of Chicken’?
Prove bravery
What is the main issue in the Game of Chicken?
Signaling intentions
Why might it be optimal to be viewed as ‘crazy’ in conflict?
To discourage escalation
What does game theory identify about decision makers?
Anticipate others’ choices
What can game theory show about outcomes?
Sub-optimal outcomes
What does game theory provide rationale for?
Coordinating activities
Braess’s paradox
Traffic congestion worsen when extra capacity added.
What should we understand to analyze complex system performance?
Incentives and interactions
