ECONM0029 Econ_Microeconomics: Games and Dominant Strategies W1_Lecture2

Flashcards covering key definitions and concepts from the lecture on Games and Dominant Strategies, including game theory, various equilibrium concepts (dominant strategy, Nash), and repeated games.

Game

An economic problem where the payoff of an agent is not solely determined by their own choices, but also by the choices of other agents.

Game theory

The general analysis of strategic interaction, used to model and analyze problems where agent payoffs depend on others' choices.

Players

The individual agents or entities involved in a game.

Strategies

The set of choices available to each player in a game.

Payoffs

The outcomes (representing utility or preferences) for each player for every possible choice of strategies, often shown in a payoff matrix.

Payoff matrix

A table that represents the payoffs to each player for each possible combination of strategies.

Dominant strategy

A strategy for a player that yields a higher payoff than any other strategy, regardless of what strategies the other players choose.

Weakly dominates

A strategy 's' weakly dominates another strategy 's'' if 's' never gives a lower payoff than 's'' and there is at least one strategy profile of other players where 's' gives a higher payoff than 's''.

Dominant strategy equilibrium

A strategy profile where every player chooses their dominant strategy.

Pareto dominates

An outcome Pareto dominates another outcome if no player prefers the second outcome, and at least one player strictly prefers the first outcome.

Pareto efficient

An outcome that is not Pareto dominated by any other outcome.

Best response

A strategy of a player that, given the strategies of other players, cannot be unilaterally switched to another strategy to achieve a strictly higher payoff.

Nash equilibrium

A strategy profile where each player is playing a best response to the other players' strategies.

Repeated games

Games in which the same set of players interact multiple times, allowing for strategies to be based on past actions.

Fixed number of rounds

A type of repeated game played for a predetermined, finite number of times, where backward induction often leads to non-cooperative outcomes.

Indefinite number of rounds

A type of repeated game where there is no predetermined 'last round,' making cooperation potentially sustainable.

Grim trigger strategy

A strategy in indefinitely repeated games where a player cooperates initially, but permanently switches to defection if an opponent ever defects.

Discount factor

A parameter in repeated games that reflects how players value future payoffs relative to immediate payoffs.

Prisioner’s Dilemma

A classic game theory example illustrating why two rational individuals might not cooperate, even when it is in their best interest to do so. Individual self-interest leads to a collectively suboptimal outcome.