Week 7: Decision and Games II - Game Theory Flashcards
Game Theory: main assumptions
Assumes that players act in their own self-interest, trying to maximize payoffs.
Zero-sum game
A game where one player’s gain is exactly balanced by the other player’s loss.
Non-cooperative/cooperative game
Non-cooperative games are when players are bound by legal rules or mechanisms that force them to keep their agreements. Cooperative games are when players form coalitions to achieve a common goal and agree on binding contracts.
Sequential/simultaneous game
Sequential games are when players make decisions in a predetermined order, with some knowledge of previous players’ choices. Simultaneous games are when players make decisions at the same time, without knowing the choices of others.
Infinitely repeated/ non-iterated game
Infinitely repeated games are when a game is played over and over again indefinitely. Non-iterated games are played only once, no matter how many strategies are involved.
Play tit for tat
A strategy in iterated games where a player replicates their opponent’s previous action. Often used in the context of the Prisoner’s Dilemma.
Prisoner’s dilemma
A game where two players can either cooperate or defect, with the highest combined payoff if both cooperate, but each player has an incentive to defect. The Nash equilibrium is when both players defect, resulting in a suboptimal outcome.
Equilibrium
A state in which no player has an incentive to deviate from their chosen strategy, given the strategies of the other players.
Iterated Dominance
A method of solving games by iteratively eliminating dominated strategies, which are strategies that are strictly worse than other available strategies for a player, regardless of what the other players do.
Backwards induction
A method for solving sequential games by working backwards from the end of the game, determining the best strategy for each player at each decision point.
Perfect/imperfect information
Perfect information refers to sequential games where players have full information about the strategies and payoffs. Imperfect information refers to games where players have incomplete information about the game, such as the strategies and payoffs of other players.
Symmetrical/asymmetrical
Symmetrical games are when all players face the same strategies and outcomes. Asymmetrical games are when the strategies and outcomes differ for the players.
Pareto optimality
A situation in which no player can improve their payoff without another player being worse off. Pareto optimality is often used as a criterion for evaluating the efficiency of outcomes in nonzero-sum games.
