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Unformatted text preview: Lecture 1 1 Static (or Simultaneous Move) Games of Complete Information Introduction to Games Normal (or Strategic) Form Representation “ No Man Is An Island” 9/2/2008 EF4484 Game TheoryLecture 1 2 Outline of Static Games of Complete Information ¡ Introduction to games ¡ Normalform (or strategicform) representation ¡ Iterated elimination of strictly dominated strategies ¡ Nash equilibrium ¡ Review of concave functions, optimization ¡ Applications of Nash equilibrium ¡ Mixed strategy Nash equilibrium 9/2/2008 EF4484 Game TheoryLecture 1 3 Agenda ¡ What is a game ¡ What is game theory ¡ Examples ¾ Prisoner’s dilemma ¾ The battle of the sexes ¾ Matching pennies ¾ Etc… ¡ Static (or simultaneousmove) games of complete information ¡ Normalform or strategicform representation 9/2/2008 EF4484 Game TheoryLecture 1 What is a Game? ¡ A situation where an entire group of people is affected by the choices made by every individual within that group. 4 9/2/2008 EF4484 Game TheoryLecture 1 What is a Game? ¡ The interesting questions are: ¡ What will each individual guess about others’ choices? ¡ What action will each individual take? ¡ What is the outcome of these actions? Is this outcome good for the entire group as a whole? ¡ Does it make a difference if the group interacts more than once? ¡ How do the answers change if an individual is unsure about the characteristics of others in the group? 5 9/2/2008 EF4484 Game TheoryLecture 1 What is a Game? ¡ Most games involve chance, skill, and strategy in varying proportions. ¡ Strategy: ¡ What is the best action to take? ¡ Example: A strategy is a part of the mental skill needed to play well, and it is the calculation of how best to use your physical skill in the context of sports. 6 9/2/2008 EF4484 Game TheoryLecture 1 Lecture 1 Tennis Example 7 crosscourt downtheline 9/2/2008 EF4484 Game TheoryLecture 1 What is not a game? ¡ A situation where your decisions affect no one but yourself. ¡ Should I go to see a movie or stay home and study? Where should I eat dinner tonight? ¡ Monopoly ¡ A situation where your decisions do affect others, but there are so many people involved that it is neither feasible nor sensible to keep track of what each one does. ¡ Perfect competition 8 9/2/2008 EF4484 Game TheoryLecture 1 Why do economists study games? ¡ Games are a convenient way in which to model the strategic interactions among economic agents. ¡ Game theory has found numerous applications in all fields of economics: 1. Trade: Levels of imports, exports, prices depend not only on your own tariffs but also on tariffs of other countries. 2. Labor: Internal labor market promotions like tournaments: your chances depend not only on effort but also on efforts of others....
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 Spring '09
 tsui
 Game Theory

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