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# week2-class-print - In this lecture Representing games and...

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Representing games and Nash Bargaining Solution ECOS3012 - Strategic Behavior School of Economics, FASS University of Sydney Lecture 2, March 9, 2011 ECOS3012 - Strategic Behavior (USYD) Representing games and Nash Bargaining Solution Lecture 2, March 9, 2011 1 / 18 In this lecture 1. How to represent a game? 1.1 Cooperative vs. Non-cooperative games. 1.2 Static (Normal or Strategic form) games vs. Dynamic games 2. ECOS3012 - Strategic Behavior (USYD) Representing games and Nash Bargaining Solution Lecture 2, March 9, 2011 2 / 18 Two major modeling approaches to games! 1. Cooperative Game Theory The “rules of play” are thought to be ﬂuid or that the players are able to make binding commitments on their behavior. The focus is then on what diﬀerent coalitions as groups can achieve and how to distribute the gains from their cooperation. 2. Non-cooperative game Theory The focus is on the individual’s incentives. The rules of play must be speciﬁed including who does what, in what order. There are other assumptions on knowledge. ECOS3012 - Strategic Behavior (USYD) Representing games and Nash Bargaining Solution Lecture 2, March 9, 2011 3 / 18 Example of a cooperative game ± Suppose there are three towns A , B and C . The cost of supplying water to various towns is known to be ± \$120 for either A or C alone and \$140 for B alone. ± \$170 for A , B together. ± \$190 for B , C together. ± \$160 for A , C together. ± \$255 for all three towns together. ± Based on such information, the question which is set of towns form a coalition and how are the costs allocated. ± For instance, if one determines that all three towns are served and cost allocated equally, the allocation will not be stable. ± As each town pays \$85, the total cost being \$170 for A and C together. On the other hand, A and C can provide for themselves by spending \$160. ± Which allocation of costs, for example, will be “stable” against formation of any sub-coalitions? ECOS3012 - Strategic Behavior (USYD) Representing games and Nash Bargaining Solution Lecture 2, March 9, 2011 4 / 18

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Non-cooperative games The model must specify the rules of the game and the knowledge assumptions in diﬀerent ways. Among other things, the following must be speciﬁed. 1. a list of players 2. a complete description of what the players can do (their possible actions), 3. a description of what players know when they act. 4. a speciﬁcation of the outcomes that obtain from various action choices. 5. a speciﬁcation of players’ preferences over these outcomes. ECOS3012 - Strategic Behavior (USYD) Representing games and Nash Bargaining Solution Lecture 2, March 9, 2011 5 / 18 Static vs. Dynamic Games Deﬁnition 1 (Static Games) A game in which all the players choose their ac- tions simultaneously, Deﬁnition 2 (Dynamic Games) At least some information about the choices
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week2-class-print - In this lecture Representing games and...

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