ECON130 - GAME THEORY

Coordination Games

A game in which players take turns and each can observe what choices were made in earlier moves

Sequential Games

A game in which players take turns and each can observe what choices were made in earlier moves

Game Theory

A model of optimality taking into consideration not only benefits less costs, but also the interaction between participants. Game theory attempts to look at the relationships between participants in a particular model and predict their optimal decisions

Time inconsistency

A phenomenon that occurs when it is not in the best interest of a player to carry out a threat or promise that was initially designed to influence the other player's actions

Pure strategy

A player chooses one action

Tit-for-tat strategy

A player cooperates in the first game and then copies the other players last move in each successive game

Grim (or Trigger) strategy

A player cooperates while the other player cooperates. If the rival cheats then it triggers the player to never cooperate again

Strategy

A players best choice in a particular situation

Mixed strategy

A probability distribution over pure strategies

Prisoners' Dilemma

A situation in which the noncooperative pursuit of self-interest by two parties makes them both worse off

Dominated strategy

A strategy giving lower payoffs than an alternative strategy regardless of what other players do

Commitment

A voluntary arrangement restricting future options. E.g. a persons will

Players

Decision markers in interdependent situations. For example: - Political parties in a negotiation - Rival (imperfect) competitors - Parents and their children arguing over a curfew

Nash equilibrium (NE)

Game equilibrium when both players execute their dominant strategies (that is, neither player would change his strategy if offered the chance to do so at the end of the game) Mutual best response

Best response

The strategy (or set of strategies) that maximises a players payoff, given the strategy of the other player

Dominant strategy

The strategy that works best no matter what the other player does in a game. A players best strategy is independent of those chosen by others

Payoff

What a player receives in a particular situation. An actions payoff may depend on: - The action itself e.g. cooperate or complain - When the actions are taken, e.g. before or after the other player has acted. - How the actions relate to those taken by others e.g. what does complaining do to future agreements

Repeated Games

Where we have an interaction over and again. - Threats of punishment are possible (not possible in a single shot game)