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
