Games and Strategic Behavior (Chapter 9)
Tit-for-tat
A strategy for the repeated prisoner's dilemma in which players cooperate on the first move, then mimic their partner's last move on each successive move
Payoff matrix
A table that describes the payoffs in a game for each possible combination of strategies
Credible threat
A threat to take an action that is in the threatener's interest to carry out
A strategy for the repeated prisoner's dilemma in which players cooperate on the first move, then mimic their partner's last move on each successive move is known as
A tit-for-tat strategy
Commitment device
A way of changing incentives so as to make otherwise empty threats or promises credible
Cartel agreements are difficult to maintain because
Each cartel member has an incentive to undercut its competitor's price in order to capture the entire market
Any combination of strategies in which each player's choice is his or her best choice, given the other player's choices is a
Nash equilibrium
A payoff matrix is a table that describes
The payoffs in a game for each possible combination of strategies
In economics, the three basic elements of a game are:
The players, the list of possible actions available to each player, and the payoffs received for each possible combination of actions
Basic elements of a game
The players, the strategies available to each player, and the payoffs each player receives for each possible combination of strategies
The problem confronting oligopolists who are trying to form a cartel is a classic illustration of
The prisoner's dilemma
A decision ____ is a diagram that describes the possible moves in a game in sequence and lists the payoffs that correspond to each possible combination of moves
Tree
A coalition of firms that agree to restrict output for the purpose of earning an economic profit is
A cartel
Cartel
A coalition of firms that agree to restrict output for the purpose of earning an economic profit
Decision tree (or game tree)
A diagram that describes the possible moves in a game in sequence and lists the payoffs that correspond to each possible combination of moves
Prisoner's dilemma
A game in which each player has a dominant strategy, and when each plays it, the resulting payoffs are smaller than if each had played a dominated strategy
Credible promise
A promise to take an action that is in the promiser's interest to keep
Commitment problem
A situation in which people cannot achieve their goals because of an inability to make credible threats or promises
Repeated prisoner's dilemma
A standard prisoner's dilemma that confronts the same players repeatedly
Nash equilibrium
Any combination of strategy choices in which each player's choice is his or her best choice, given the other players' choices
Dominated strategy
Any other strategy available to a player who has a dominant strategy
In repeated prisoner's dilemmas, tit-for-tat strategies have been shown to be effective at limiting defection in
Computer simulations but not real-world cartel agreements
A ________ threat is a threat to take an action that is in the threatener's interest to carry out
Credible
A commitment ______ changes incentives so as to make otherwise empty threats or promises credible
Device
If a player has a strategy that yields a higher payoff no matter what the other players in a game choose, then that strategy is a ________________
Dominant strategy
A commitment problem is a situation in which people cannot achieve their goals because of an inability to
Make credible threats and promises
Dominant strategy
One that yields a higher payoff no matter what the other players in a game choose
A game in which each player has a dominant strategy, and when each plays it, the resulting payoffs are smaller than if each had played a dominated strategy is called a(n) _________________
Prisoner's dilemma
Commitment problems can sometimes be solved by altering people's:
Psychological incentives Material incentives
A standard prisoner's dilemma that confronts the same players not just once but many times is known as a
Repeated prisoner's dilemma
In a sequential game, the player who moves last _________ has a strategic advantage
Sometimes
It is _________ in a firm's best interest to offer a product that is similar those already being sold by its competitors
Sometimes