ECON1401 topic 1 Game theory lecture 1
28/02/2011
1
ECON 1401: Economic Analysis
Topic 1: Game theory
Gautam Bose
Lecture 1
Games and their solutions
Today’s Agenda
•
What is a game, and what is “game theory”?
•
Simultaneous Games and Their Solution Concepts
The game matrix (game table)
g
(g
)
•
Examples.
–
Nash equilibrium
–
multiple equilibria
•
Sequential Games and Their Solution Concepts
ECON1401 Semester 1 2011 Lecture
22
–
How to write down and solve a Sequential Game.
–
Rollback (subgame
‐
perfect) equilibrium.
–
Examples.
Game Theory
•
Game theory is a unified method for analysing
rategic interactive situations which span the
strategic, interactive situations which span the
spectrum from tic
‐
tac
‐
toe to nuclear arms races.
•
It is a “theory” because it abstracts the essential,
common features of these situations, and
analyses them in the abstract.
•
use game
‐
eoretic insights and shed light on
ECON 1401 Semester 1 2011 Lecture
23
To use game theoretic insights and shed light on
a
particular
situation (e.g. enterprise bargaining
at UNSW), we have to colour in the specific
details.
Games
•
What is a game?
–
A situation involving two or more agents (“players”)
hite and black in chess
•
White and black in chess
•
Management vs union
•
Obama and the Republican challenger
–
Each of whom can adopt one of several permissible
courses of action (“strategies”)
•
Mgmt offers small/medium/large pay rise, union threatens
strike if demands are not met (other strategies)
ECON 1401 Semester 1 2011 Lecture
24
(
g)
–
The combination of strategies together determine the
outcome for each player (“payoffs”)
•
Medium pay raise for union, little work loss combined with
high worker morale for management (other outcomes)
This preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentECON1401 topic 1 Game theory lecture 1
28/02/2011
2
Simultaneous and sequential games
•
In some games, all players choose their actions
the same time (without knowing the
at the same time (without knowing the
choices of other players).
–
sealed
‐
bid auction, or tender
–
Scissors, paper, rock
•
In other games, there is a given sequence in
which players choose their actions/strategies.
ECON 1401 Semester 1 2011 Lecture
25
–
Bargaining over a price (offer
‐
counteroffer)
–
Tic
‐
tac
‐
toe and chess
•
Different analysis for the two kinds of games
What do we want to determine?
•
Given the specifications of a game, how will the
players play?
•
This cannot usually be answered for one player in
isolation, because the best that one can do
depends on what the other does.
•
The test of whether a player has done the best is
that the player does not
in retrospect
wish she
ad done something
ifferent
ECON 1401 Semester 1 2011 Lecture
26
had done something different.
•
If we can find an outcome in which this criterion
is satisfied for each player, we have found an
equilibrium
.
This is the end of the preview.
Sign up
to
access the rest of the document.
 Three '11
 professorsnamespublishedtheyarethesoleowners
 Economics, Game Theory, French Revolution, Leftwing politics, Game Theory Lecture

Click to edit the document details