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Ch11-GameII - Chapter11 ThinkingII SequentialMoves...

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Chapter 11 Game Theory and Strategic  Thinking II
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2 Sequential Moves Games entail strategic situations in which there is  a strict order of play. If I make this move, how will you respond? Graphical approach Game Tree / Extensive form
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3
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4 Game Tree Nodes & Branches Outcomes and Payoffs Moves & Strategies A strategy  is a complete plan of moves, indicating what the player  does at every   decision nodes where the player has the move.  More on this later. Subgames (loose definition)
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5 Backward Induction How to solve the game?? We use Backward Induction . ( or   Rollback ) Looking ahead and reasoning back to determine optimal  behavior. Rollback equilibrium Game theory predicts this outcome as the equilibrium  when all players are rational calculators in pursuit of their  payoffs.
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6 The Smoking Decision
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7 The Smoking Decision However, this analysis ignores the problem of addiction.
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