Strategy2Handout

# Strategy2Handout - Analyzing Games We need three things to...

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9/10/2008 1 Analyzing Games ± We need three things to specify a game ± Players ± Possible strategies for each player ± Payoffs for each player over outcomes ± We consider a notion of equilibrium: no forces for change Analyzing Games ± Players have well-defined and well-behaved preferences over outcomes ± Each player is rational : he chooses the strategy that yields his most-preferred outcome ± The game is clearly and correctly specified ± Everything about the game is common knowledge Example – The Dictator Game ± Two Players: Sender and Receiver ± Sender is given \$10 by a rich benefactor ± Sender can send \$x to the Receiver ± Sender’s payoff: \$(10-x) ± Receiver’s payoff: \$x Example – The Dictator Game ± How I might draw out the dictator game 10 (0,10) (1, 9) (Sender’s payoff, Receiver’s payoff) SENDER 1 0 9 (10, 0) (9, 1) Example – The Dictator Game ± Not a game – just a decision problem ± In experiments, Senders often give significant amounts to Receivers they don’t know!!! ± WHY??? ± Senders are not rational? ± Senders value “fairness” as well as money ± \$10 is insignificant, decisions are just random ± Senders don’t believe they are anonymous ±

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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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Strategy2Handout - Analyzing Games We need three things to...

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