Game Theory Flashcards
(14 cards)
What is game theory?
the study of how economic agents behave in strategic situations
what must each ‘player’ do in game theory?
decide what to do, based on the choices the other player makes
What is the outcome of the prisoners dillemma?
Sub-optimal
( as a result of how the incentives of the game are set up. )
In game theory what are the numbers in the prisoners dilemma table representing?
Utility for each player
What is a dominant strategy?
the one a player will choose, regardless of what the other player does
What is a Nash equilibrium?
where neither player has an incentive to change their actions, given the actions of the other player.
What happens when both parties have a dominant strategy?
there will be one Nash equilibrium (steal,steal)
How many Nash Equilibriums are there with no dominant strategies?
There will be 2 nash equilibrium
(given they choose back, you should choose front - given they choose front, you should choose back)
What is a Symmetric game?
payoffs for both players mirror each other
- Nash equilibria are the same for both players
What should be assumed in game theory?
We assume there is perfect competition for both players in terms of payoffs
(countdown knows new world has a dominant strategy of price high)
How many Nash Equilibriums are there with one dominant strategy?
One dominant strategy = one Nash equilibrium
When are firms NOT acting in anti-competitive fashion?
If their behaviour is the same as a firm without a dominant position, but similarly placed
What is anti-competitive behaviour?
lowering price, then raising prices in the future to RECOUP LOSSES is anti-competitive
- yet this is difficult to prove in court
Why is it unlikely we will get the optimal outcome for both parties in the prisoners dilemma?
Because collusion is illegal
