Chapter 9 - Games & strategic behavior

Basic elements of a game:
  * Players
  * Strategies available to each player
  * Payoffs each player receives for each possible combination of strategies
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.