Intro to game theory

What is Decision Theory?

Decision Theory is the study of how individual agents or firms make isolated decisions given their objectives and constraints.

What is an example of Decision Theory?

Marginal-cost, marginal-benefit analysis is an example of Decision Theory.

What is Game Theory?

Game Theory is the study of how agents make choices in environments where the choices of others affect their outcomes and their choices.

What is a key characteristic of Game Theory?

In Game Theory, your actions affect others, and others' actions affect you.

What are Strategies in Game Theory?

Strategies are the different possible plans of action for a player in a game.

What do players' payoffs represent in Game Theory?

Players' payoffs represent utilities, which are not always monetary payoffs.

What is assumed about players' behavior in Game Theory?

Game Theory assumes rational behavior from all players.

What is Common Knowledge of Rationality in Game Theory?

Common knowledge of rationality means each player knows that the other player is rational.

What is an Equilibrium in Game Theory?

An equilibrium is a set of strategies from the players where no player has a tendency to change given the other's actions.

What is a Nash Equilibrium?

A Nash Equilibrium is a set of strategies such that each player has no reason to change her strategy if she knows what the other player is doing.

What is Best-Response Analysis in Game Theory?

Best-Response Analysis involves going strategy-by-strategy to find each player's best response given the other player's actions.

What defines a Dominant Strategy?

A dominant strategy is a single strategy of a player that always yields higher payoffs regardless of what the other player's actions are.