Topic 12: Game Theory

Question 1

rationality

Answer 1

selecting the most preferred from the available options

extends into a world of uncertainty

Question 2

game theory

Answer 2

thinking about how other people think and thinking about how other people think you think

Question 3

strategic interaction

Answer 3

situations where consequences of choice depend on other agents’ choices

Question 4

strategy

Answer 4

complete contingent plan of action for each player

Question 5

rationalisability

Answer 5

asking what strategies are never the best option no matter what other people do

Question 6

nash equilibrium

Answer 6

if every player’s strategy is a best response to the strategies of other players

rationality can’t get you NE
- need mutual rationality and recursivity

Question 7

sequential rationality

Answer 7

strategy that is optimal at every point of the game tree

rules out non-credible threats and unreasonable NE in sequential games

Question 8

backwards induction

Answer 8

repeatedly applying sequential rationality from the bottom of the game tree

Question 9

discounted utility model

Answer 9

how does the DM feel about different alternatives when they involve things arriving at different points in time?

Question 10

factors unaccounted for in discounted utility model

Answer 10

procrastination, time inconsistency

Question 11

implications of the discounted utility model

Answer 11

DM prefers utility sooner than later