Unit 4 - Social Interactions

Question 1

What are Social Interactions

Answer 1

Situations in which people’s actions affect each other as well as themselves

Question 2

What is Nash equilibrium

Answer 2

When no players want to deviate from their choice

Question 3

Invisible Hand vs Prisoners Dilemma

Answer 3

Invisible Hand = dominant strategy is the best outcome

Prisoner’s Dilemma = Payoffs of dominant strategy means players are worse off than if neither chose their dominant strategy

Question 4

What can happen to the economy if there are more than one Nash Equilibrium (caused by independent choices)

Answer 4

The economy can get stuck in an equilibrium in which all players are worse off than at the other equilibrium