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