Lecture 7

Lecture 7 - o Idea that people are conditioning their...

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Lecture 7 Thursday, February 14, 2008 5:03 PM 1. Stable, rational preference, 2. Thus emotional can be rational in the context of preference. 3. Payoffs, utility,  two types,  o ordinal utility, ordering of preferences, all that matter is the ordering, numbers do not matter. o Cardinal utility, expected utility theory, where the numbers actually matters. Preferences  stable over lotteries of outcomes. If I prefer having 50 % at wining 10 over 50 percent over  wining less. Expected utilities, asking more in terms of what it means to be rational. High payoff  (lottery) where people express unstable preferences (consider the odds) 4. Decision theory, no strategic intereaction between players, other player's actions do no have  effect. One dimensional, weighing the odds without change in system, 5. Game theory: strategic intereation. Players actions impact each other.
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Unformatted text preview: o Idea that people are conditioning their behavior on how other people are going to behave. 6. Two major types of games o Static/normal form game • 2 X2 MATRIX example in lecture simultaneous player actions. • Derive strategy from. Solve for some form of strategy. • Equilibrium concept, give stratefy that neither wants to deviate from, Nash equilibrium. A set of strategy where each player is playing the best response to the other player's strategy . • Choice choosen to maximize own payoff given if the other;'s strategy were to stay the same. • There is always one, if not more Nash Equilibrium. • Battle of the Sexes, two possible equilibrium, coordination game. o Dynamic/ Extensive form game. • Adds the element of time....
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Lecture 7 - o Idea that people are conditioning their...

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