Chapter 9: Game Theory and Strategic Thkning

All games share 3 features:

1. rules 2. strategies 3. payoffs

Strategies:

are the plant of action that players follow to achieve their goals.

Payoffs:

are the rewards that come from particular actions.

we use a more positive word to describe the noncooperative equilibrium:

competition

Rules:

define the actions that are allowed in a game.

In the game of rock, paper, scissors, what type of strategy is used?

NONE! dominant strategy does NOT work because you cannot base your move on their move.

Commitment strategy:

in which players agree to submit to a penalty in the future if they defect from a given strategy.

first-mover advantage:

in which the player who chooses first gets a higher payoff than those who follow.

Nash Equilibrium:

is reached when ALL players choose the best strategy they can, GIVEN the choices of all other players.

sequential games

players make decisions one after another, so one player responds to the known decisions of other players

Reaching a ___ - ____ outcome through a commitment strategy can benefit everyone.

positive - positive

first-mover advantage can be extremely important in one-round ____ games.

sequential

**** how do you find the equilibrium in a game theory board?

???

Prisoner's Dilemma:

A game of strategy in which people make rational choices that lead to a less-than-ideal result for all.

strategies and incentives often work quite differently when game are ____.

Repeated

Repeated game:

a game that is played more than once

Behaving strategically

acting to achieve a goal by anticipating the interplay between your own and others' decisions.

change the payoffs by agreeing to future penalties can allow players to reach a mutually ______ equilibrium that would otherwise be ____ to maintain.

beneficial difficult

In the original game of prisoners' dilemma, both candidates will look at their options and realize that whatever the other one does, they're _____ off going _____.

better negative

there can be two _____.

equilibriums

repeated play can also change the outcome in sequential games by reducing the ___-____ ____.

first - mover advantage

Going ____ is a dominant strategy for BOTH candidates in an election campaign.

negative

Noncooperative equilibrium is the ____ - ____ outcome, because the participants act independently, pursing only their individual interests.

negative - negative

many firms have to make ____ decisions in sequential games.

strategic

Sequential Games:

the players move sequentially rather than simultaneously

Backward induction:

the process of analyzing a problem in reverse - staring with the last choice, then the second-to-last choice and so on, to determine the optimal strategy.

Game Theory

the study of how people behave strategically under different circumstances.

in sequential games it is import to ___ forward and ____ backward

think work

Game

to refer to any situation involving at least two people that require those involved tithing strategically.

Think forward:

what are all the possible outcomes of the situation you are considering?

Work backward:

what choice would you need to make to achieve your preferred outcome?

Tit-for-tat strategy:

whatever the other player foes, you do the SAME thing in response.

Dominant Strategy:

when a strategy is the best one to follow no matter what strategy other players choose, it is called _____ _____.

even if you are completely sure that your accomplice can be trusted not to confess, ____ should still ___.

you confess