5.GameTheory

# 5.GameTheory - Game Theory Outline Normal form...

This preview shows pages 1–2. Sign up to view the full content.

Game Theory Outline Normal form games ( simultaneous ), Nash equilibrium Extensive form games ( sequential ), Subgame perfect equilibrium Repeated games Game theory analyzes the interactions between rational, decision-making individuals who may not be able to predict fully the outcomes of their decision. Models of oligopoly can be viewed as games of strategies or actions (such as setting output, price, or advertising levels). Two representations of game Normal form game(simultaneous move games): Simultaneous in the sense that when one player chooses his action the action taken by the other player(s) unknown. (Not necessary that players move at same point in time) Extensive form game (sequential move games): Sequential in the sense that before one player moves he observes the action chosen by other player(s). Normal Form Games Three elements: A set of players I = {1,2,…, N } Each Player’s action set A i = { a i 1 ,a i 2 ,… } e.g., if the firm chooses price, the action set is any price greater than zero. outcome : a = ( a 1 , a 2 ,…,a i ,…, a N , ) Each player’s payoff function π i ( a ), i.e. payoff as a result of the actions by all the agents. e.g., firm’s profit Extensive Example: Prisoner’s Dilemma Jerry -1 -1 -9 0 Silent 0 -9 -5 -5 Confess Silent Confess Tom Example: Prisoner’s Dilemma (cont’d) Jerry -1 -1 -9 0 Silent 0 -9 -5 -5 Confess Silent Confess Best response of a player i for a given

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern