Chapter 2- game theory

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12 Terms

1
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is game theory a theory? what are its assumptions?

  • no, it’s an analytical tool and method.

  • assumes that individuals are rational and act strategically.

2
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Define social dilemmas:

  • a situation in which actions are taken independantly by self-interested individuals resulting in a socially suboptimal outcome.

3
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What is the Public goods social dilemma?

  • public goods → non excludable

  • free riding= benefitting from contributions of others to some cooperative project without contributing oneself.

    • solution= public provision and payment (taxes)

4
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Tragedy of commons:

  • common pool ressources=

    • problem= overexploitation, free riding.

5
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Coordinating economic actors:

  • strikes

6
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How do we solve social dilemmas? Mecanism?

1) social preferences.

2) private institutions

3) Public policies & institutions.

7
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What are the key concepts of game theory?

  • social interaction

  • strategic interaction

  • strategy

8
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What are the common demonitiors of any games?

  • players

  • feaible strategies

  • information

  • payoffs

9
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What is the invisible hand?

  • actors maximise benefits without any real strategy.

    • go for relative gains rather than absolute.

  • pursuite of self interest in economics can lead to socially desirable outcomes.

10
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What are the problems with the invisible hand?

Sometimes following self-interest can lead to:

  • sub-optimal outcomes (underperformance)

  • really bad outcomes

  • negative externalities

11
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What does the prisoner’s dilemma show?

  • individual incentives often make cooperation difficult.

  • selfish behaviour can lead to suboptimal outcomes.

12
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What is the nash equilibria?

= stable outcome, no incentive to go anywhere else.