Econ301_week7-8

Econ301_week7-8 - Econ 301 Intermediate Microeconomics Week...

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Econ 301 Intermediate Microeconomics Week 7 - 8, Jul 26 - Aug 6 Jingbo Cui (ISU) Econ 301-Summer 2010 Week 7 - 8, Jul 26 - Aug 6 1 / 51 Experiment - Battle of Sexes I Two players: She (P1) and He (P2) are planning the evening; Two possible strategies: F - watch football, C - Concert; She (P1) would like to go to a concert; He (P2) prefers watching cyclone football; An evening without the other is a disaster for both; In terms of utility, the payoff matrix is: P1 \ P2 F C F 1, 2 0, 0 C 0, 0 2, 1 Jingbo Cui (ISU) Econ 301-Summer 2010 Week 7 - 8, Jul 26 - Aug 6 2 / 51
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Experiment - Battle of Sexes II Battle of the Sexes: P1 \ P2 F C F 1, 2 0, 0 C 0, 0 2, 1 Experiment 1. You are playing the BoS. You are player 1, what will you play? - Most people here play the preferred strategy in BoS. Experiment 2. You are player 1 in the BoS. Player 2 makes the 1st move and chooses an action. You cannot observe her action until you have chosen your own action. Which action will you choose. - Note that the game is still the same simultaneous move game as before. Jingbo Cui (ISU) Econ 301-Summer 2010 Week 7 - 8, Jul 26 - Aug 6 3 / 51 Experiment - Battle of Sexes III Experiment 3. You are player 1 in the BoS. Before actually playing the game, you opponent (player 2) had an opportunity to make an announcement. Her announcement was ”I will play C”. You could not make a counter-announcement. What will you play? - Most students chose the less desirable action. The announcement seems to strengthen beliefs that the other players will choose C. - This kind of communication is called cheap talk because this type of message is costless to the sender. - It should not matter for the analysis of game. Player 2 expands her strategies set from { F , C } to { Ff , Fc , Cf , Cc } . - where strategy Ff means that player 2 plays F and announces to play f, while Cf means that player 2 plays C but announces f. - The game has exactly the same NE as before. However, the announcement seems to have successfully signalled to player 1 that player 2 will choose her preferred strategy. - P1 \ P2 F C Ff 1, 2 0, 0 Fc 1, 2 0, 0 Cc 0, 0 2, 1 Jingbo Cui (ISU) Econ 301-Summer 2010 Week 7 - 8, Jul 26 - Aug 6 4 / 51
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Experiment - Battle of Sexes IV Experiment 4. Two players are playing the BoS. You are player 1. Before actually playing the game, player 2 had an opportunity to make a short announcement. Player 2 chooses to remain silent. What is your prediction about the outcome of the game? - Most people chose P2 preferred action. - Apparently, silence is interpreted as weakness. In the experiment 2-4 the underlying game is always the above BoS. However, in each case the results differ significantly from the basic experiment 1 we conducted. This tell us that players signal their intention to each other, and that the normal strategic form does not capture this belief formation process. Jingbo Cui (ISU) Econ 301-Summer 2010 Week 7 - 8, Jul 26 - Aug 6 5 / 51 Overview I A game is any competition between players in which strategic behavior plays a major role. It consists of the following elements: 1 players : i.e. individual, firm, 2 action : a move that a player makes at a specified stage of a game.
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Econ301_week7-8 - Econ 301 Intermediate Microeconomics Week...

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