Micro economics chapter 5

What is game theory?

The theory that tries to predicts outcomes of situations of social interaction

What are strategic decisions?

Those in which each person, in deciding what action to take, must consider how others might respond to that action.

How do people make choices in a simultaneous game?

Without the knowledge of the choices made by others.

How do players play in a sequential game?

They take their turn in a certain order.

How is a one shot game played?

Only once

How is a repeated game played?

More than one time

What kind of game is the prisoners dilemma?

Each player has incentive to choose an action that benefits itself at the other players expense. When both players act this way they are worse off than if they had acted cooperatively.

What is a pay-off matrix?

Table showing the possible combination of outcomes depending on the strategy chosen by each player.

What is a dominant strategy?

Strategy that is best for a player to play regardless of the strategies chosen by other players.

What is a Nash equilibrium?

A combination of strategies where no player wishes to change his strategy given the strategy (or the expected strategy) of other players.

If each player chooses a dominant strategy, the combination of those strategies ……

Constitute a Nash equilibrium

Is it possible for there to be two Nash equilibria?

Yes.

What is the tit-for-tat strategy?

A player starts by cooperating and then does exactly what the other player does.