# Week 2 Flashcards

What is a social dilemma

a situation in which actions taken independently by self-interested individuals result in socially suboptimal outcome

eg. climate change or traffic jams

what is the tragedy of the commons

common property or common resources are often overexploited

think old time example of common pastures and sheep

what is free riding?

a few bear the costs while everyone enjoys the benefits

In game theory what is a player

a player is someone who is involved in the interaction

in game theory what is a feasible strategy

the actions each player can take

in game theory what is the information

what each player knows when choosing their action

in game theory what is the payoffs

the outcomes for every possible combination of actions

in game theory what is a one shot game

when the players only interact once

in game theory what is the best response

the strategy that yeilds the highest payoff, given the others players strategy

in game theory what is the dominant strategy

a best response to all possible strategies of the other player

In game thoery what is the dominant strategy equilibrium

an outcome of a game in which everyone plays their dominant strategy

What is the nash equillibrium

a set of strategies - one per player - such that each players strategy is the best response to the strategies chosen by everyone else

no player has an incentive to deviate unilaterally

there may be more than one nash equilibrium

What is the prisoners dilemma

a game with a dominant strategy equillibrium in which player the dominant strategy yeilds lower individual and total payoffs compared to other strategies

socially optimal outcome is not achieved

What is the invisible hand

Adam Smith

conditions under which individuals pursuring their own interests, without regard for the interests of others can be consistent with the common good

under the right laws and economic institutions (pp and competition) the economy would be guided towards a socially beneficial outcome

what is a self-interest preferences

when a person with self-interested preferences choose to take some action, she only accounts for how it affects her personally ignoring the effects on others