People in Business and Society WEEK 3 (Part 1)

What is a simultaneous move game?

A gae in which players choose actions without knowing the other players’ current choices. Each player’s payoff depends on the combination of everyone’s actions

What are the main components of a simultaneous move game?

Players, action sets, possible outcomes and payoffs. In a payoff matrix, the first number belongs to the row player and the second to the column player.

What is a strictly dominant strategy?

An action that gives a player a higher payoff than another action regardless of what the opponent chooses.

What is Rule of Strategy 2?

If you have a dominant strategy, use it.

In the Rainbows End vs. B.B. Lean pricing game, what is each firm’s dominant action

Charge $70 rather than $80. This gives higher profits regardless of the competitors pricing decision.

What is the Nash equilibrium in the clothing price-war example?

Both firms charge $70 and earn $70,000 each, even though both would earn $72,000 if they charged $80.

Why is the Prisoner’s Dilemma called a dilemma?

Each player has an individual incentive to defect, so both defect even though mutual cooperation would make both better off,

What is the unique Nash equilibrium in the lecture’s general Prisoner’s Dilemma?

(Defect, Defect), with payoffs (2,2). Each player’s dominant action is Defect, while mutual cooperation would yield (5,5).

How can repeated interactions help resolve the Prisoner’s Dilemma?

Future rewards and punishments make cooperation more attractive because today’s actions affect the opponent’s behaviour in later rounds.

What is tit-for-tat?

A repeated-game strategy: cooperate in the first round, then copy the opponents action from the previous round.

What are the four characteristics of an effective tit-for-tat strategy?

Clarity, niceness, provocability and forgiveness.

What is the weakness of tit-for-tat, and how does tit-for-two-tats differ?

Mistakes can trigger repeated retaliation. Tit-for-two-tats is more forgiving because it does not punish after just one defection.

What is a Nash equilibrium?

A combination of strategies where no player can improve their payoff by changing their own strategy while the other players keep theirs unchanged.

How do you find Nash equilibria when no dominant strategy exists?

Find each player’s best response to every opponent action. A cell is a Nash equilibrium when both players are playing the best responses to one another.

What does Rule of Strategy 4 tell you to do?

After checking for dominant strategies, search the payoff matrix for mutual best responses in the same cell.

What is the main problem in a coordination game?

Players need to align their choices. Multiple Nash equilibria may exist, so the challenge is coordinating on the same outcome.

What are the three pure-strategy Nash equilibria in Fred and Barney’s hunting game?

(Stag, Stag), (Bison, Bison) and (Rabbit, Rabbit), with payoffs (3,3), (3,3) and (1,1), respectively

How can social norms be understood as coordination equilibria?

People benefit from following the same convention, making established norms stable and difficult to change unless many people switch behaviour.

What is the Battle of the Sexes game?

A coordination game where players want to choose the same activity but prefer different coordinated outcomes.

What are the pure-strategy Nash equilibria in the lecture’s Battle of the Sexes example?

(Theater, Theater), payoffs (3,1), and (Baseball, Baseball), payoffs (1,3).

What is the Chicken Game?

Two players each prefer that the other yields, but if neither yields, both experience the worst outcome.

What are the pure- strategy Nash equilibria in the Chicken Game?

(Turn, Not Turn) and (Not Turn, Turn). In either case, only one player yields.

What is a focal point?

A natural or salient choice that players expect others to select, helping them coordinate without explicit agreement.

How do cooperation and coordination games differ?

Cooperation games involve incentives to free-rider or defect. Coordination games involve incentives to align choices and reach agreement.

What is the key lesson of ‘For Whom the Bell Curve Tolls’?

When success depends on a relative performance, players may continually increase effort or spending without improving their relative positions. A self-enforcing agreement is difficult to maintain.

What is the socially optimal travel split in ‘The Route Less Traveled’.

Of 10,000 commuters, 2,000 should drive across the bay bridge and 8,000 should use BART, according to the lecture’s model

How could the socially optimal commuting outcome be encouraged?

Use bridge licences, tolls, or technology-based road pricing to reduce excessive driving.

What does ‘Faster than a speeding ticket’ illustrate?

Multiple equilibria may exist: widespread speeding and widespread speed-limit compliance. Strict temporary enforcement can help shift the behaviour toward compliance.

What is a mixed strategy, and why might players use one?

A strategy that randomises between available pure actions, making behaviour harder for an opponent to predict and exploit.

What is Rule of strategy 5 for zero-sum games?

If revealing your chosen action would disadvantage you in a pure-conflict game, randomise between available pure strategies to keep the opponent guessing.