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
