65: Game Theory

Question 1

game theory

Answer 1

the study of behavior in situations of interdependence

Question 2

payoff

Answer 2

reward received by a player in a game, such as profit earned by an oligopolist

Question 3

prisoner’s dilema

Answer 3

1) each player has an incentive, regardless of the others actions, to cheat
2) if both cheat, they are worse off than if neither did

Question 4

dominant strategy

Answer 4

the action that is best for one player regardless of the others actions

Question 5

Nash equilibrium

Answer 5

the result when each player chooses the dominant strategy, or when each player chooses the option that maximizes profits given the action of the other

Question 6

strategic behavior

Answer 6

when the firm attempts to influence the future behavior of other firms

Question 7

tit for tat

Answer 7

a strategy of playing cooperatively at first, then doing whatever the other player did in the previous period, thereby rewarding cooperative behavior and punishing non-cooperative behavior

Question 8

tacit collision

Answer 8

when firms expect to be competing for a long time, and thus conclude that behaving cooperatively is the most profit maximizing strategy (w/o formal collusion)