Economic (week 7)

Question 1

Game Theory

Answer 1

Focuses on interactions among decision-makers, particularly in two-player games. Studies equilibrium outcomes in strategic interactions, representing payoffs as utilities and emphasizing common rationality assumptions.

Question 2

Elements of a Game

Answer 2

A game comprises players, actions or strategies for each player, and payoff functions dictating preferences for each action profile. Players represent decision-makers (individuals, firms, or governments) with multiple potential actions or strategies

Question 3

Normal Form Representation

Answer 3

Depicts games in a matrix, often for two-player games with finite strategy space. It simplifies scenarios where moves are simultaneous or revealed simultaneously, aiding in analyzing strategic interactions.

Question 4

The Prisoner’s Dilemma

Answer 4

A game exemplifying conflicting interests; when two suspects must decide to confess or remain silent, showcasing the tension between individual and collective rationality, leading to non-cooperative outcomes.

Question 5

Solving Games

Answer 5

Focuses on determining equilibria within games, usually by eliminating strictly dominated strategies, resulting in identifying the stable outcome based on rational choice assumptions.

Question 6

Iterated Elimination of Strictly Dominated Strategies

Answer 6

A process of identifying strategies that are strictly dominated by others, aiding in predicting equilibria in the game by removing less favorable strategies.

Question 7

Limits of Iterated Elimination

Answer 7

Acknowledges situations where the iterative elimination of strictly dominated strategies fails to predict clear outcomes due to conflicting strategies or a lack of dominance.

Question 8

Definition of Nash Equilibrium

Answer 8

A strategy profile where each player’s strategy is a best response to others’ strategies. It denotes a stable outcome in which no player has an incentive to unilaterally deviate.

Question 9

Intuition Behind Nash Equilibrium

Answer 9

Players’ adherence to strategies predicted by the theory signifies strategic stability. It involves no player’s desire for unilateral deviation from the equilibrium and aligns with rational choice models.

Question 10

Best Response Functions

Answer 10

A method to identify equilibria in larger games by finding the best strategy for each player concerning various possible strategies employed by others