Strategy5Handout - 9/15/2008 Finding Nash Equilibria We'd...

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9/15/2008 1 Finding Nash Equilibria ± We’d like a method for finding NE Player 2 1234 ± NE occur where Best Responses intersect, i.e. in cells with two circles Player 1 A 5 , 7 6 , 4 11 , 12 8 , 22 B 2 , 6 15 , 3 1 , 0 7 , 2 C 3 , 9 2 , 6 19 , 9 6 , 5 D 0 , 0 0 , 1 9 , 17 17 , 12 Example – Attributed to A.W. Tucker ± Two Prisoner’s brought in for interrogation ± They are put in separate rooms Clyde Barrow Mum Fink ± Known as “The Prisoner’s Dilemma” Bonnie Parker Mum 2 , 2 0 , 3 Fink 3 , 0 1, 1 Example – The Prisoner’s Dilemma ± It’s so famous, the payoffs have names! ± T>R>P>S Clyde Barrow ± T – temptation R – reward ± P – punishment S – sucker Cooperate Defect Bonnie Parker Cooperate R , R S , T Defect T , S P, P Pareto Efficiency ± An outcome is Pareto Efficient if no one can be made better off without making someone else worse off ± In the Prisoner’s dilemma, the Nash equilibrium is Pareto inefficient ± Many social and economic situations are Prisoner’s dilemmas ± Washing dishes ± Partnership ± Politics Example – Prisoner’s Dilemma ± Much thought has gone into ways to get the cooperative (efficient) outcome.
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This note was uploaded on 04/14/2010 for the course ECON 398 taught by Professor Emre during the Spring '07 term at University of Michigan.

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Strategy5Handout - 9/15/2008 Finding Nash Equilibria We'd...

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