Lecture10_

Lecture10_ - Strategic Choice LECT URE Slide 2 Games and...

Info iconThis preview shows pages 1–12. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Strategic Choice LECT URE Slide 2 Games and Strategic Behavior Thus far, we have viewed economic decision makers as confronting an environment that is essentially passive. But there exist many cases in which relevant costs and benefits depend not only on the behavior of the decision makers themselves but also on the behavior of others . Slide 3 Thinking Strategically Interdependencies: In making choices, people/firms must consider the effect of their behavior on others. If opens a new store in Causeway Bay, how should respond? Imperfectly competitive firms may consider how rivals will respond to price changes or to new advertising. Slide 4 Game Theory Game theory is a useful tool to help better understand the strategic decisions of rival firms. To analyze the choices facing each player. To design utility-maximizing actions, or strategies , that respond to every action of the other players. Slide 5 The Prisoners Dilemma People (firms) often fail to cooperate with one another even when cooperation would make them better off. => The prisoners dilemma is a particular game that illustrates why cooperation is difficult to maintain even when it is mutually beneficial . Slide 6 The Prisoners Dilemma Scenario: Two prisoners (Ann and Peter) have been arrested for a crime that they committed and accused of collaborating in this crime. They are in separate jail cells and cannot communicate. Each has been asked to confess to the crime. Slide 7 The Prisoners Dilemma Scenario: The prosecutor, however, has only enough hard evidence to convict them of a minor offense, for which the penalty is a year in jail. Each prisoner is told that if one confesses while the other remains silent, the confessor will go free while the other spends 20 years in prison. If both confess, they will get an intermediate sentence, 5 years. Slide 8 The Prisoners Dilemma Basic elements of a game: The players (2 prisoners). Their strategies (confess, remain silent). The payoffs (jail sentences). The elements of a game can be summarized in the form of a payoff matrix . Slide 9 The Payoff Matrix for a Prisoners Dilemma Confess Remain Silent Confess Remain Silent Peter Ann 5 years 5 years for each for each 20 years for Peter 20 years for Peter 0 years for Ann 0 years for Ann 1 year 1 year for each for each 0 years for Peter 0 years for Peter 20 years for Ann 20 years for Ann Slide 10 The Prisoners Dilemma Should the prisoners confess? If the prisoners are rational and narrowly self-interested, what will they do? Slide 11 The Prisoners Dilemma A strategy for Ann: If Peter confesses and she confesses, she gets 5 years....
View Full Document

This note was uploaded on 04/21/2011 for the course ECON 1001 taught by Professor S.c during the Fall '10 term at HKU.

Page1 / 77

Lecture10_ - Strategic Choice LECT URE Slide 2 Games and...

This preview shows document pages 1 - 12. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online