Game Theory & Competitive Dynamics Flashcards

This set of vocabulary flashcards covers fundamental concepts of game theory, including specific historical and hypothetical scenarios like the Prisoner's Dilemma, Game of Chicken, and Backward Induction.

Prisoner’s Dilemma

A standard game theory scenario where players choose between "Confess" and "Don’t Confess," resulting in payoffs such as $(-5, -5)$ for mutual confession and $(-1, -1)$ for mutual cooperation.

Backward Induction

A strategy of looking forward and reasoning back by asking what rivals will do in the future based on current actions and using that answer to decide what to do today.

Repeated Game

A characteristic of market competition that makes it different from a one-time Prisoner's Dilemma because interactions occur multiple times.

Sequential Decision-making

A situation where player choices are made one after another rather than simultaneously.

Rational Actor

The assumption that decision-makers only care about maximizing economic profits; however, in the real world, actors may not always follow this behavior.

Game of Chicken

A game where two parties approach each other on a narrow bridge; the first to swerve yields and "loses face," while failing to swerve leads to a head-on collision.

J’s Deli vs. Subway Case

A competition scenario where both firms make $\$500,000$ annually; if both double advertising, profits for both fall by $\$100,000$, but if only one doubles, its profits rise by $\$250,000$ while the other's fall by $\$150,000$.

Cortes vs. The Aztecs

A historical example of commitment strategy where the Spanish conqueror sunk his own ships to strand his force and eliminate the option of retreat.

Battle of the Sexes

A coordination game where a husband and wife prefer attending events together (receiving $0$ utility if alone) but have different preferences for the football game (Mike: $3$, Kristin: $2$) and the theater (Kristin: $3$, Mike: $2$).

Market Entry Situation

A strategic game involving a Potential Entrant and an Incumbent who must decide whether to "Enter" or "Don't Enter" and "Fight" or "Accommodate."