Unit 4

Question 1

Game

Answer 1

A model of strategic interaction that describes the players, the feasible strategies, the information that the players have, and their payoffs

Question 2

game theory

Answer 2

A branch of mathematics that studies strategic interactions, meaning situations in which each actor knows that the benefits they receive depend on the actions taken by all

Question 3

dominant strategy equilibrium

Answer 3

An outcome of a game in which every player plays his or her dominant strategy.

Question 4

social dilemma

Answer 4

A situation in which actions taken independently by individuals in pursuit of their own private objectives result in an outcome which is inferior to some other feasible outcome that could have occurred if people had acted together, rather than as individuals.

Question 5

Altruism

Answer 5

The willingness to bear a cost in order to benefit somebody else.

Question 6

reciprocity

Answer 6

A preference to be kind or to help others who are kind and helpful, and to withhold help and kindness from people who are not helpful or kind.

Question 7

inequality aversion

Answer 7

A dislike of outcomes in which some individuals receive more than others.

Question 8

Nash equilibrium

Answer 8

A set of strategies, one for each player in the game, such that each player’s strategy is a best response to the strategies chosen by everyone else.

Question 9

prisoners’ dilemma

Answer 9

A game in which the payoffs in the dominant strategy equilibrium are lower for each player, and also lower in total, than if neither player played the dominant strategy.

Question 10

Unit 4 context

Answer 10

Previous models of choice (Unit 3) did
not depend on others’ decisions
* Individuals motivated by self-interest
can produce outcomes that are
beneficial for society e.g.
entrepreneurship, innovation (Unit 1)
* However, self-interest can also be
harmful to society (create social
dilemmas):
* Why do these problems arise?
* What can we do about it?

Question 11

Forms of social dilemma

Answer 11

1)Tragedy of the commons
2)Free riding

Question 12

Social dilemmas and game
theory

Answer 12

• Devising policies to promote people’s wellbeing
  requires an understanding of the difference between:
• situations in which self-interest can promote
  general wellbeing, and
• situations in which self-interest leads to undesirable
  result

Question 13

Strategy

Answer 13

a choice that a player may take in a social
interaction (the player is aware of the mutual
dependence of that action’s outcome on themselves
and others)

Question 14

outcome

Answer 14

is the situation that results from the
combination of strategies by both players