L9gametheory

L9gametheory - Lecture 9: Game Theory Key Terms in Lecture...

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Lecture 9: Game Theory
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Key Terms in Lecture • Subgame and proper subgame • Subgame perfect Nash Equilibrium (SPNE) • Backward induction
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Subgame-Perfect Equilibrium • Subgame-perfect Nash equilibrium (SPNE) rules out empty threats by requiring strategies to be rational even for contingencies that do not arise in equilibrium (loose definition) – wife plays boxing, husband plays (boxing | ballet, boxing | boxing) • H does not need to worry about the part of his strategy that coincides with W going to Ballet b/c in equilibrium she does not go to Ballet • But, if we required that his strategy not include empty threats even for contingencies that don’t arise in equilibrium, then this would greatly affect the game • Why should we care about SPNE? Because in sequential games it seems a more realistic concept!
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• A subgame is a part of the game tree beginning with a decision node and including everything to the right of it • A proper subgame starts at a decision
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This note was uploaded on 12/21/2009 for the course ECON 1211 taught by Professor Govel during the Spring '08 term at Columbia.

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L9gametheory - Lecture 9: Game Theory Key Terms in Lecture...

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