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lecture6 - Lecture 6 Game Theory Key Terms in Lecture Game...

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Lecture 6: Game Theory
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• Game – players – actions – strategies – payoffs Extensive Form Normal Form Nash Equilibrium Dominant Strategy Key Terms in Lecture
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Game Theory… In economics we consider an agent choosing actions to maximize its objective function (subject to constraints) e.g.: choose how much to consume subject to budget constraint Up to now, we have postulated that each given action is associated with an outcome (possibly probabilistically) We have not worried about interactions between different agents i.e., the actions of one agent have not affected the decision of another What if the impact of Bob’s action on Bob’s utility function depends on what action Joe takes? And what if the impact of Joe’s action on Joe’s utility function depends on what action Bob takes? Then when Bob chooses his action he has to worry about what Joe does, and vice versa.
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