Rationality and Common Knowledge Flashcards
What are social preferences?
When player cares not only about their own preferences, but others. E.g. Self-regarding, other regarding, inequity averse, trustworthiness, reciprocity.
What does it mean for a game to be static and to have complete information?
Static means that a set of players make independent once-and-for-all decisions after which outcomes are realised. Complete information means all players understand the environment and have common knowledge of decisions, outcomes, payoffs and preferences.
What defines common knowledge?
When everyone knows the event, everyone knows everyone and so on ad infinitum.
What is Pareto dominance?
When the payoffs of a strategy equilibrium are not pareto dominated by any other strategy equilibrium
What is a strictly dominant strategy?
When the payoffs from all the possible outcomes from playing that strategy are strictly bigger than playing any other strategy.
What can you say about IESDS?
Strictly dominated strategy never a BR and never survives IESDS. Strictly dominant and IESDS equilibrium is a BR. The set of strategy profiles that survive the process are called rationalizable strategies (those strategies that are best responses)
What evidence is there of IEDS?
Beauty Contest (Keynes, 1936). 2 players choose number between 0 and 100 and the one closer to 2/3 of the average wins. The weakly dominant strategy is to pick 0. However in practise this does not happen.
