Chapter 10

Question 1

the decision problems that you face in real life have an:

Answer 1

interactive or strategic nature. This means that whatever happens depends not just on what you do but also on what other people do.

Question 2

When are you said to be playing a game?

Answer 2

whenever you face a decision problem in which the final outcome depends not just on your action, and on whatever state of the world obtains, but also on the actions of at least one other agent.

Question 3

The agents

involved in games are called

Answer 3

players.

Question 4

What is a strategy?

Answer 4

is a complete plan of action that

describes what a player will do under all possible circumstances

Question 5

how can we represent a game?

Answer 5

payoff matrix

Question 6

payoff matrix

Answer 6

A payoff matrix is a table representing the payoffs of the players for each possible combination of strategies.

Question 7

strategy profile

Answer 7

a vector of strategies, one for each player.

Question 8

What is analytical game theory built around?

Answer 8

Nash equilibrium

Question 9

Nash Equilibrium

Answer 9

A Nash equilibrium is a strategy profile such that each strategy in the profile is a best response to the other strategies in the profile.

Question 10

pure coordination game

Answer 10

a game in which the players’ interests are perfectly aligned.

Question 11

impure coordination game.

Answer 11

players benefit unequally from particular equilibrium

Question 12

When is outcome X said to Pareto dominate another Y.

Answer 12

An outcome X is said to
Pareto dominate another Y if all players weakly prefer X to Y and at least one
player strictly prefers X to Y.

Question 13

Pareto optimal

Answer 13

when Outcome it is not Pareto

dominated by any other outcome.

Question 14

game theorists refer to non-binding verbal agreements as:

Answer 14

cheap talk.

Question 15

How to find equilibrium of a repeated game?

Answer 15

we start at the end and use a

procedure called backward induction.

Question 16

backward induction.

Answer 16

Backward induction is the process of reasoning backwards in time, from the end of a problem or situation, to determine a sequence of optimal actions.

Question 17

zero-sum game

Answer 17

a game in which whenever

one player wins, another player loses.

Question 18

mixed strategies.

Answer 18

an assignment of a probability to each pure strategy

Question 19

Nash’s theorem

Answer 19

Every finite game – that is, every game in

which all players have a finite number of pure strategies – has a Nash equilibrium.

Question 20

Trembling-hand-perfect equilibrium

Answer 20

A trembling-hand-
perfect equilibrium is a Nash equilibrium that remains a best response for each

player even when others have some minuscule probability of trembling, that is,
accidentally playing an out-of-equilibrium strategy.

Question 21

what are games with multiple stages called?

Answer 21

sequential game.

Question 22

To analyze sequential

games, it is often useful to use

Answer 22

use a tree-like representation called the extensive

form.

Question 23

What is a subgame of the original game

Answer 23

that part of the game which starts at the node where Player

II moves

Question 24

Subgame-perfect equilibrium

Answer 24

A subgame-perfect equi-

librium is a strategy profile that constitutes a Nash equilibrium in each subgame.