Week 3 Flashcards
(35 cards)
What does a payoff matrix (game theory) show?
A payoff matrix shows the payout to each player,
given the decision of each player.
What is a game?
A game is a situation where the participants’ payoffs depend not only on their decisions, but also on their rivals’ decisions.
This is called Strategic Interaction:
My optimal decisions will depend on what others do in the game.
What is a Nash equilibrium?
Nash equilibrium: I’m doing the best I can given what you are doing. You’re doing the best you can given what I am doing.
The decisions of the players are a Nash Equilibrium if no individual prefers a different choice. Each player is choosing the best strategy, given the strategies chosen by the other players.
What is the prisoner’s dilemma?
- Two individuals have been arrested for possession of guns.
- The police suspects that they have committed 10 bank robberies
- If nobody confesses the police, they will be jailed for 2 years
- If only one confesses, she’ll go free and her partner will be jailed for 40
years - If they both confess, they get 16 years
How do you find the Nash equilibrium?
- Step 1: Pretend you are one of the players
- Step 2: Assume that your “opponent” picks a particular action
- Step 3: Determine your best strategy (strategies), given your opponent’s action
- Underline any best choice in the payoff matrix
- Step 4: Repeat Steps 2 & 3 for any other opponent strategies
- Step 5: Repeat Steps 1 through 4 for the other player
- Step 6: Any entry with all numbers underlined is NE
What is the ultimatum game?
- 2 players
- 1 player gets €10
- She has to offer part of this amount to Player 2
- Players can either accept or reject the offer
- If he rejects, both players get nothing
What do reciprocity and fairness mean?
Reciprocity: many people seem to desire reciprocity: ‘If someone does good (or bad) to me then I want to do good (or bad) to them.
Fairness: people care about outcomes, relative to others: ‘Why should I get less than he’, ‘Why should I get more than she?
What are the two important characteristics of goods?
- If a good is excludable
- If a good is rival in consumption
What does it mean when a good is excludable?
A good is excludable if a person can be prevented from using it.
* Excludable: ice cream cones, wireless internet access
* Not excludable: FM radio signals, national defense
What does it mean when a good is rival in consumption?
A good is rival in consumption if one person’s
use of it diminishes others’ use.
* Rival: ice cream cones
* Not rival: an MP3 file of a popular song
What are private goods?
Excludable and rival in consumption. For example: Food
What are public goods?
Not excludable and not rival in consumption. For example: National defense
What are common recources?
Not excludable, but rival in consumption. For example: Fish in the ocean
What are natural monopolies?
Excludable, but not rival in consumption. For example: Cable TV
What is a free rider?
A person who receives the benefit of a good but avoids paying for it
If good is not excludable, people have incentive to be free riders, because firms cannot prevent non-payers from consuming the good.
Result: The good is not produced, even if buyers collectively value the good higher than the cost of providing it.
Out of which components does the theory of planned behavior exist?
- Attitude
- Subjective norm
- Perceived behavioral control
-> Intention -> behavior
What are descriptive norms?
Beliefs about what others do
What are prescriptive/injunctive norms?
Beliefs about what others think we should do
What does labor supply mean?
If you pay more your employees work harder, more work requires more compensation
What is the IKEA effect?
Labor leads to love
Investing time can lead to us valuing the fruits of labor higher, if?
o We are able to finish our projects.
o Our projects are meaningful - i.e. not for nothing.
Why are we not homo economicus?
o Social norms (descriptive at least) are powerful drivers of behavior.
o Monetary rewards can change the ‘market’ from social to financial, such that increasing pay decreases effort
o We change our preferences around price zero, but not at increased demand (due to social norms)
What does simple random sampling mean?
Each member of population has equal chance of being sampled.
Example: Sending out an e-mail to all students
What does stratified random sampling mean?
Je pakt vanuit iedere groep een bepaald aantal, dus bijvoorbeeld 100 uit jaar 1, 200 uit jaar 2, 50 uit jaar 3 en 400 uit jaar 4.
