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Unformatted text preview: Chapter 12  Choices Involving Strategy Chapter 12: Choices Involving Strategy Main Concepts and Learning Objectives This chapter focuses on strategic analysis. The chapter begins with an explanation of the basic elements of strategic interaction: the rules that govern the interaction, the player's goals, the possible payoffs, and the game's timeframe. The chapter then describes dominant and dominated strategies in order to explain the central concept of a Nash Equilibrium. The Prisoners' Dilemma game is presented as an example to develop this explanation. Two additional sections discuss multistage games and games with perfect and imperfect information. Realworld applications are presented to demonstrate the value of strategic thinking in a wide variety of situations. Students who master the material presented in this chapter will be able to: • Analyze onestage and multiplestage games • Analyze the implications of two key elements of games: rules and players’ objectives • Construct a payoff table • Analyze a prisoners' dilemma payoff table, and use this information to determine whether singlestage games have dominant strategies, dominated strategies, and Nash Equilibria • Determine whether a mixed strategy would be preferred to a pure strategy • Analyze the impact of repeated play, compared with onetime games • Assess whether cooperation is likely to emerge in specific games • Examine the strategic impact of information that is held by only one player, and not available to the other player. 121 Chapter 12  Choices Involving Strategy Multiple Choice Quiz (10 questions) covering main points: 1. Which two of the following statements are true? (Assume there are two players in each game.) a. in a onestage game each participant makes his choice without knowing the choice of the other participant b. in a multistage game, at least one participant has information about the other player’s choice before he makes his choice. c. in a multistage game, each participant have information about the other player’s choice before he finalizes his choice. d. in a onestage game, only one participant is permitted to make a choice. 2. A strategy is dominant if a. it is that player’s best response, regardless of the other players’ choices. b. it will permit that player to dominate the game and knock the other player completely out of the game. c. it maximizes the expected value of that player’s payoff. d. it permits the player to dominate the game by exaggerating his power (within the game) through bluffing. 3. Which of the following is a prisoner’s dilemma? (The numbers in each cell represent years of prison time. The first number in each cell represents Clyde’s sentence; the second number represents Bonnie’s sentence.) Note that small numbers are preferred over large numbers. Hint: begin by checking each game to determine whether Bonnie has a dominant strategy. Then check whether Clyde has a dominant strategy. Check the...
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This note was uploaded on 04/06/2011 for the course ECON 3332 taught by Professor Craig during the Spring '11 term at Rensselaer Polytechnic Institute.
 Spring '11
 Craig

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