PASS Summary2 - Lee Sun

# PASS Summary2 - Lee Sun - Set2 :Lizhe(Lee)Sun Disclaimer...

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Prepared by Lizhe (Lee) Sun, please refer to the disclaimer on the first page for more information. ~ 1 ~ Pass Summary Notes Session 1 2011 Set 2 Prepared by Pass Leader: Lizhe (Lee) Sun Disclaimer: These notes are personal collections of past notes with the editor’s individual notes that were edited and then compiled. The editor, Lee Sun, does not guarantee or take any responsibility for the correctness of these notes. These notes are prepared for students that participate in the Australian Business School’s PASS Program and are to be used at your own discretion. Every effort has been made to include all references that were used in making these notes and the editor sincerely wishes that apologies will be accepted for any errors or omissions. For questions regarding any materials related to the course Microeconomics (ECON1101) at the University of New South Wales, please always refer to the textbook, lecture notes and other course authorities excluding the contents contained in this document. Except as permitted by the Copyright Act 1968, no part of this document may in any form or by any electronic, mechanical, photocopying, recording, or any other means be reproduced, stored in a retrieval system or be broadcast or transmitted without the prior consent of the editor. Content: Note: the ordering of the materials may be different to the order of how the materials were presented to you.

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ECON1101 Week 10 Game Theory The Theory Of Games The Three Elements of a Game Any game has three basic elements: 1. The players 2. The strategies available to each player 3. The payoffs each player receives for each possible combination of strategies (e.g. winning, losing, profits, prestige, economic profits) Payoff matrix a table that describes the payoffs to each player in a game for each possible combination of strategies. There are typically four scenarios. Dominant strategy a strategy that yields a player a higher payoff no matter what the other players in a game chooses. Not all games involve dominant strategies, but both players in most games have one. Dominated strategy any other strategy available to a player who has a dominant strategy. It leads to a lower payoff than an alternative choice, regardless of what the other player chooses. However, when both players choose the dominant strategy, the resulting payoff is smaller than if both parties could have left the spending unchanged. Nash equilibrium a set of strategies, one for each player, in which each player’s strategy is his or her best choice to give the highest payoff avaliable, given the other player’s strategies. o When a game is in equilibrium, no player has any incentive to deviate from his or her current strategy. If each player has a dominant strategy, equilibrium occurs when each player follows that strategy. But even in games where not every player has a dominant strategy, an equilibrium can still be reached.
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