Econ3(Game Theory)

coordination game

both players are better off if they coordinate their choices your best response is the same choice as the other player

delaying

changes the order of moves

first-mover advantage

credible commitments to agressive actions

sequential game

games that play out over time (order of moves matter)

check mark method

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

solving sequential games

look forward and reason backward

payoff table

table which lists your choices in each row, other player's choices in each column

nash equilibrium

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

best response

the choice that yields the highest payoff for you, given the other player's choice

prisoner's dilemma

the socially optimal outcome is not the equilibrium

moving pre-emptively

turns a simultaneous game into a sequential game (do it when there's a first mover advantage)

multiple eqiulibria

when there is more than one equilibrium

strategic interaction

when your best choice depends on what others choose and their best choose depends on what you choose

mixed strategy

you unpredictably mix between your alternative actions

anti-coordination games

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

solving coordination problems

1. communication: works when all players want the same thing 2. cues from outside the game that helps you coordinate on an equilibrium (focal points) 3. culture and norms 4. laws and regulations: can enforce coordination

4 steps to making good strategic decisions

1. consider all possible outcomes 2. think about the "what ifs" separately 3. play your best response 4. put yourself in other people's shoes

problems of coordination game

1. difficulty in reaching equilibrium 2. may end up in the worse of the multiple equilibria

when should you consider a mixed strategy?

1. whenever there's any harm in letting the other player know your choice before he chooses 2. out-guessing game (rock, paper, scissor) 3. one player wants to coordinate, the other wants to anti-coordinate

second-mover advantage

adapt flexibility to other player's choices

simultaneous games

all players make their choices without knowing what choice the other has made