ECE1040.06.post

ECE1040.06.post - UNIT II: The Basic Theory Zero-sum Games...

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UNIT II: The Basic Theory Zero-sum Games Nonzero-sum Games Nash Equilibrium: Properties and Problems Bargaining Games Review Midterm 3/18 3/4
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Bargaining Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want …; and it is this manner that we obtain from one another the far greater part of those good offices we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. -- A. Smith, 1776
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Bargaining Bargaining Games We Play a Game Credibility Subgame Perfection Alternating Offers and Shrinking Pies
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Bargaining Games Bargaining involves (at least) 2 players who face the the opportunity of a profitable joint venture, provided they can agree in advance on a division between them. Bargaining involves a combination of common as well as conflicting interests. The central issue in all bargaining games is credibility: the strategic use of threats, bluffs, and promises.
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The Ultimatum Game OFFERS 5 4 3 2 1 0 REJECTED ACCEPTED N = 15 Mean = $2.05 4 Offers > 0 Rejected 0 Offer < 1.00 (20%) Accepted (2/25/09)
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The Ultimatum Game 0 2.72 5 P 1 P 2 5 2.28 0 2.50 1.00 What is the lowest acceptable offer? 9/9 4/4 25/27 2/2 2/2 3/3 20/28 N = 131 Mean = $2.25 34 Offers > 0 Rejected 6/26 Offers < 1.00 (20%) Accepted Pooled data (as of 3/07) 6/7 3/17
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The Ultimatum Game Theory predicts very low offers will be made and accepted. Experiments show: Mean offers are 30-40% of the total Mode = 50% Offers <20% are rare and usually rejected Guth Schmittberger, and Schwarze (1982) Kahnemann, Knetsch, and Thaler (1986) Also, Camerer and Thaler (1995) How would you advise Proposer? What do you think would happen if the game were repeated? See: Guth Schmittberger, and Schwarze (1982) Kahnemann, Knetsch, and Thaler (1986) Also, Camerer and Thaler (1995)
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The Ultimatum Game How can we explain the divergence between predicted and observed results?
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ECE1040.06.post - UNIT II: The Basic Theory Zero-sum Games...

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