GT2-BR - Overview Last Lecture Best Response UGBA 143 Game...

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1 1 Best Response UGBA 143: Game Theory and Business Decisions 2 Overview Last Lecture: Introduced notion of dominance Strategies that are uniformly good / bad to the decision maker, no matter what others do Today: Idea of “best response” Strategies that the decision maker should choose in response to a particular set of actions taken by others 3 The Location Game Two beer vendors, Bud and Weiser, need to locate themselves on a stretch of beach Sunbathers are spread evenly along the beach Bud and Weiser are required to charge the same price Sunbathers purchase one can of beer from the closest vendor Where should Bud and Weiser locate themselves? 4 The Location Game B & W locate themselves next to each other, in the middle of the beach No matter where B chooses, W will choose the same location, but slightly closer to the majority No matter where W chooses, B will relocate and “hop over” W towards the side with majority Both B & W will repeatedly relocate and shift towards the middle 5 Best Response Analysis Start with any choice for B W plays best response to B’s initial choice B plays best response to W’s best response W plays best response to (B’s best response to W’s best response)
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