Lecture 22 - Apr 15 - Intro to Game Theory, Solving a Game, Nash Equilibrium

Lecture 22 - Apr 15 - Intro to Game Theory, Solving a Game, Nash Equilibrium

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Economics 100A Lecture #22: Thursday, April 15 1) Introduction to game theory 2) Solving a game 3) Nash equilibrium
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(1) Game theory The study of social interaction among two or more rational decision makers, each making choices that have consequences for the others as well as themselves. Examples of “Games” scissors-paper-stone, tic-tac-toe, chess, Monopoly ® , Texas hold ‘em, “chicken” nuclear or conventional warfare, political campaigns price wars, advertising campaigns, technology races, M & A
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Key properties of games noncooperative : players cannot make binding agreements to take certain actions can’t trust opponent strategic interdependence : one player’s payoff from choosing a strategy depends on what other players do circularity : to select her best strategy, a player must know what other players will do, but they, in turn, are in this same situation John Von Neumann Oscar Morgenstern
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Ingredients of a game 1. PLAYERS firms, consumers, political parties, nations 2. STRATEGIES price, advertising, campaign expenditures 3. PAYOFFS profit, utility, votes 4. INFORMATION opponent’s last move, random event (weather) 5. TIMING simultaneous moves, leader and follower The “Extensive Form” Brings Them All Together - it’s like a “decision tree” with multiple decision makers - compare with “strategic form” which ignores timing
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This note was uploaded on 01/19/2011 for the course C 10 taught by Professor Filippenko during the Spring '07 term at University of California, Berkeley.

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Lecture 22 - Apr 15 - Intro to Game Theory, Solving a Game, Nash Equilibrium

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