Chapter 9 - Games & strategic behavior

Cartel

Cartel

________: coalition of firms that agree to restrict output for the purpose of earning an economic profit.

possible moves

Decision tree= game tree: diagram that describes the ________ in a game in sequence and lists the payoffs that correspond to each possible combination of moves.

Payoff matrix

table that describes the payoffs in a game for each possible combination of strategies

Dominant strategy

one that a yields a higher payoff no matter what the other players in a game choose

Dominated strategy

any other strategy available to a player who has a dominant a strategy

Nash equilibrium

any combination of strategy choices in which each player's choice is his/her best choice, given the other players' choices

Prisoner's dilemma

game in which each player has a dominant strategy, and when each plays it, the resulting payoffs are smaller than if each had played a dominated strategy

Cartel

coalition of firms that agree to restrict output for the purpose of earning an economic profit

Repeated prisoner's dilemma

standard prisoner's dilemma that confronts the same players repeatedly

Tit-for-tat

strategy for the repeated prisoner's dilemma in which players cooperate on the first move, then mimic their partner's last move on each successive move

Decision tree = game tree

diagram that describes the possible moves in a game in sequence and lists the payoffs that correspond to each possible combination of moves

Credible threat

threat to take an action that is in the threatener's interest to carry out

Credible promise

promise to take an action that is in the promiser's interest to keep

Commitment problem

situation in which people cannot achieve their goals because of an inability to make credible threats or promises

Commitment device

way of changing incentives so as to make otherwise empty threats or promises credible

Players; strategies available to each player; payoffs each player receives for each possible combination of strategies

Basic elements of a game

Payoff matrix

Table that describes the payoffs in a game for each possible combination of strategies

Dominant strategy

One that a yields a higher payoff no matter what the other players in a game choose

Dominated strategy

Any other strategy available to a player who has a dominant a strategy

Nash equilibrium

Any combination of strategy choices in which each player's choice is his/her best choice, given the other players' choices

Prisoner's dilemma

Game in which each player has a dominant strategy, and when each plays it, the resulting payoffs are smaller than if each had played a dominated strategy

Cartel

Coalition of firms that agree to restrict output for the purpose of earning an economic profit

Repeated prisoner's dilemma

Standard prisoner's dilemma that confronts the same players repeatedly

Tit-for-tat

Strategy for the repeated prisoner's dilemma in which players cooperate on the first move, then mimic their partner's last move on each successive move

Decision tree game tree

Diagram that describes the possible moves in a game in sequence and lists the payoffs that correspond to each possible combination of moves

Credible threat

Threat to take an action that is in the threatener's interest to carry out

Credible promise

Promise to take an action that is in the promiser's interest to keep

Commitment problem

Situation in which people cannot achieve their goals because of an inability to make credible threats or promises

Commitment device

Way of changing incentives so as to make otherwise empty threats or promises credible