Lecture 5 - Homework Due Friday 4:15PM Hand homework in to...

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1/22/2009 1 Homework Due Friday 4:15PM ± Hand homework in to your GSI during discussion section OR ± Turn in homework to the specially marked box outside Lorch Hall 109 by 4:15PM ± Today: Chapter 4, Next Week: Chapter 5 Homework Due Friday 4:15PM ± Dixit & Skeath, Chapter 3, Question 9, Part c) ± Should read: “Explain intuitively why the difference between the outcomes in Part a) and Part b) arises.” Finding Nash Equilibria ± We’d like a method for finding NE Player 2 1234 ± NE occur where Best Responses intersect, i.e. in cells with two circles Player 1 A 5 , 7 6 , 4 11 , 12 8 , 22 B 2 , 6 15 , 3 1 , 0 7 , 2 C 3 , 9 2 , 6 19 , 9 6 , 5 D 0 , 0 0 , 1 9 , 17 17 , 12 Nash Equilibrium Philosophy ± Equilibrium as a point where there are No Incentives for Change ± How to talk of “change” and “best response” in a game that is only played once? ± Think of Nash Equilibrium as ± system of beliefs about what others will do ± beliefs are subjective ± beliefs are correct in equilibrium ± action that is optimal given beliefs Example – Attributed to A.W. Tucker ± Two Prisoner’s brought in for interrogation ± They are put in separate rooms Clyde Barrow Mum Fink ± Known as “The Prisoner’s Dilemma” Bonnie Parker Mum 2 , 2 0 , 3 Fink 3 , 0 1, 1 Bonnie & Clyde (ca 1933)
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1/22/2009 2 Example – The Prisoner’s Dilemma ± It’s so famous, the payoffs have names! ± T>R>P>S Clyde Barrow Cooperate Defect ± T – temptation R – reward ± P – punishment S – sucker Bonnie Parker Cooperate R , R S , T Defect T , S
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This note was uploaded on 03/13/2009 for the course ECON 398 taught by Professor Emre during the Spring '07 term at University of Michigan.

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Lecture 5 - Homework Due Friday 4:15PM Hand homework in to...

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