GT1-dominance - Two Smart Pigs Dominant Strategies UGBA 143...

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1 1 Dominant Strategies UGBA 143: Game Theory and Business Decisions 2 Two Smart Pigs Big Pig and Small Pig Food bin with dispenser at one end and lever at other end Pressing lever dispenses 600g of food and burns some calories (equivalent to 50g of food) Division of food: If Big Pig presses: BP gets 100g, SP gets 500g If Small Pig presses: BP gets 600g, SP gets none If both press: BP gets 400g, SP gets 200g What happens? 3 Two Smart Pigs One might expect Small Pig to be subordinate to Big Pig Surprisingly, experiments reveal that Big Pig always presses Outcome: BP gets 100g, SP gets 500g This arrangement is a natural mechanism to equalize pig sizes (SP grows faster than BP) Why does this happen? 4 Two Smart Pigs Small Pig has an obvious choice Small Pig is better off not pressing, no matter what Big Pig does Big Pig faces dilemma But Big Pig can put itself in Small Pig’s shoes Big Pig should press the lever 5 Two Smart Pigs Pigs did not learn game theory Outcome was as if they did Converge to this outcome by trial and error over a sequence of plays: Small Pig tried pressing lever
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