Game Theory Midterm 1

A series of vocabulary flashcards based on key concepts in Game Theory to help the student prepare for their upcoming midterm exam.

Strategic-form Game

Mathematical representation of a situation where two or more players make simultaneous decisions, without knowing the choices of the other players.

Prisoner's dilemma

Situation where two rational individuals might not cooperate, even though it appears that it is in their best interest to do so.

Tension between private and collective incentives

The conflict of interest that can occur when individuals or entities make decisions that affect both themselves and a larger group or community.

Dominated strategy

A strategy that is always worse for a player, regardless of the choices made by the other players.

Best response

The strategy that provides the highest payoff for that player given the strategies chosen by the other players.

Nash Equilibrium

A situation in a game where each player's strategy is optimal, given the strategies chosen by all the other players.

Pareto Efficiency

A state of allocation in which it is not possible to make any one individual better off without making at least one other individual worse off.

Cournot's model of competition

A model describing a duopoly in which each firm chooses its level of output to maximize its profit, taking into account the output level of the other firm.

Bertrand's model of competition

A model describing how firms compete by setting prices for their products rather than quantities.

Mixed strategy

A strategy in which a player doesn't choose a single deterministic action, but rather assigns probabilities to different actions.

Nash Equilibrium in mixed strategies

A situation in a game where each player chooses a probability distribution over their available actions in such a way that, given the probability distributions chosen by the other players.

Best-guaranteed payoff

The highest outcome that a player can ensure, regardless of the actions taken by other players in a game.

Focal Point equilibrium

A solution to a game or coordination problem based on salient, easily recognizable features or ideas, rather than on mathematical or strategic calculations.

Beauty Contest Game

A game that is used to illustrate how people operate on different levels of reasoning.