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lec23 - Economics 101A(Lecture 23 Stefano DellaVigna...

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Economics 101A (Lecture 23) Stefano DellaVigna April 21, 2009
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Outline 1. Dynamic Games 2. Oligopoly: Stackelberg 3. General Equilibrium: Introduction 4. Edgeworth Box: Pure Exchange
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1 Dynamic Games Nicholson, Ch. 8, pp. 255-266 ( better than Ch. 15, pp. 449—454, 9th) Dynamic games: one player plays after the other Decision trees Decision nodes Strategy is a plan of action at each decision node
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Example: battle of the sexes game She \ He Ballet Football Ballet 2 , 1 0 , 0 Football 0 , 0 1 , 2 Dynamic version: she plays fi rst
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Subgame-perfect equilibrium. At each node of the tree, the player chooses the strategy with the highest payo ff , given the other players’ strategy Backward induction. Find optimal action in last pe- riod and then work backward Solution
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Example 2: Entry Game 1 \ 2 Enter Do not Enter Enter 1 , 1 10 , 0 Do not Enter 0 , 5 0 , 0 Exercise. Dynamic version. Coordination games solved if one player plays fi rst
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Can use this to study fi nitely repeated games Suppose we play the prisoner’s dilemma game ten times.
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