Lecture2 - Analyzing Games We need three things to specify...

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1/13/2009 1 Analyzing Games We need three things to specify a game Players Possible strategies for each player Payoffs for each player over outcomes We consider a notion of equilibrium: no forces for change Analyzing Games Players have well-defined and well-behaved preferences over outcomes Each player is rational : he chooses the strategy that yields his most-preferred outcome The game is clearly and correctly specified Everything about the game is common knowledge Example – The Dictator Game Two Players: Sender and Receiver Sender is given $10 by a rich benefactor Sender can send $x to the Receiver Sender’s payoff: $(10-x) Receiver’s payoff: $x Example – The Dictator Game How I might draw out the dictator game 10 (0,10) (1, 9) (Sender’s payoff, Receiver’s payoff) SENDER 1 0 9 (10, 0) (9, 1) Example – The Dictator Game Not a game – just a decision problem In experiments, Senders often give significant amounts to Receivers they don’t know!!! WHY??? Senders are not rational? Senders value “fairness” as well as money $10 is insignificant, decisions are just random Senders don’t believe they are anonymous Senders have evolved to behave “fairly”
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