Chapter 18 (game theory) - Week 15

first mover advantage

the strategic gain from an anticipatory action that can force a rival to respond less agressively

multiple equilibria

when there is more than one equilibrium

finitely repeated game

when you face the same strategic interaction a fixed number of times

indefinitely repeated game

when you face the same strategic interaction an unknown number of times

repeated game

when you face the same strategic interaction with the same rivals and the same payoffs in successive periods

strategic interaction

when your best choice may depend on what other's choose and their best choice may depend on what you choose

focal point

a cue from outside a game that helps you coordinate on a specific equilibrium

strategic plan

a list of instructions that describes exactly how to respond in any possible situation

prune the tree method

a method for solving game trees: start by looking forward to the final period and highlighting out your rivals best responses, then prune the options the rival would never choose, the dead leaves, off your game tree

Grim Trigger strategy

if the other players have cooperated in all previous rounds, you will cooperate, but if any player has defected in the past, you will defect

check mark method

if you put a check mark next to each player's best response, then an outcome with a check mark from each player is a nash equilibrium

look forward

in games that play out over time, you should look forward to anticipate the likely consequences of your choices

game tree

shows haw a game plays out over time, with the first move forming the trunk, and then each subsequent choice branching out, so the final leaves show all possible outcomes

reason backward

start by analyzing the last period of the game; use this to figure what will happen in the second to last period, and keep reasoning backward until you can see all the consequences that follow from today's decision

best response

the choice that yields the highest payoff given the other player's choices

second-mover advantage

the strategic advantage that can follow from taking an action that adapts to your rival's choice

coordination game

when all players have a common interest in coordinating their choices

anti-coordination game

when your best response is to take a different but complementary action to the other player

one-shot game

a strategic interaction that occurs only once

payoff table

a table that lists your choices in each row, the other player's choices in each column, and shows all possible outcomes, listing the payoffs in each cell

collusion

an agreement by rivals not to compete with each other but to all charge high prices instead

Nash equilibrium

an equilibrium in which the choice that each player makes is a best response to the choices other players are making