Lecture 23

Lecture 23 - Must specify the strategy pair plus state of...

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Lecture 23 Perfect Bayesian Equilibrium: a. Beliefs have to be consistent with strategies  b. Strategies have to be consistent with beliefs c. Both players are playing with best strategies 2. EP comes from the first step, must then be consistent with the second. 3. Brings in beliefs and updating into game theory 4. Only stable is at equilibrium 5. Equilibria is stabel situation where neither need to deviate, both knows all and has no incentive  6. Use the other player's strategy to update the strategy for the posterior  7. Difference is that Bayseian takes into account the other player's type How do you verify a Perfect Bayesian Equilibrium:
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Unformatted text preview: Must specify the strategy pair plus state of the player Player 1: (Enter/Strong Stay out/Weak) Player 2: (Coop/Enter) P(Strong/Enter) = P(B/A) * p(A) p(B/A) * p(A) + p(B/nA)*p(-A) P(enter/strong)*P(Strong) / P(enter/strong)*P(Strong) +{ P(enter/1-strong)*P(1-strong)} P(E/S) = 1 EP (Coop) = 50 = P(E/S)*50 + P(E/W)*50 EP(Fight) = P(E/S)*0 + P(E/W)*60 = 0 Does E/S give a higher payoff SO/S Yup Does SO/W a higher payoff than E/W Nope So Does not meet Criterion number 3. Player 1: enter/weak Enter/Strong Player 2: strong/enter Post belief s/e = .5...
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Lecture 23 - Must specify the strategy pair plus state of...

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