Econ 202 - game theory

game theory

the study of strategic interactions

strategic interactions

important situations where the actions of others impacts your payoffs

three key elements of a game

players, strategies, payoffs

game

of any competition between players

player

A participant in the game

strategy

a complete plan describing how a player will act under every possible scenario/circumstance

simultaneous move game

players choose at the same time.

Best-Response

taking the other players' strategies as given, it gives her greater payo s than any other strategy she has available.

dominant strategy

One player's best response, regardless of what the other person does

nash equilibrium

dominant strategy equilibrium, a strategy combination where each strategy is a best response to the strategies of others

two requirements to nash equilibrium

1. all players understand the game and the payoffs of each strategy

2. all players recognize that the other players understand the game and the payoffs of each strategy

two problems with game theory in the real world

1. What are the payo s? Is it always easy to compute them? 2. Players may have different abilities

first mover advantage

When the first player in a sequential game benefits from being first

zero sum game

one player's loss is another player's gain, so the sum of payo s on each cell adds up to zero