week10-class - Extensive Form Games - continued ECOS3012 -...

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Extensive Form Games - continued ECOS3012 - Strategic Behavior School of Economics, FASS University of Sydney Lecture 8, April 20, 2011 ECOS3012 - Strategic Behavior (USYD) Extensive Form Games - continued Lecture 8, April 20, 2011 1 / 9
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In this lecture . .. (Lecture 8, Ecos3012, 20 April, 2011) Extensive Form Games - continued Solution concepts and Bilateral bargaining 1. Incredible threats and Backward Induction. 2. covers much of the above. Bilateral Bargaining 3. Ultimatum game. 4. Alternating offers with a deadline. 5. Alternating offers without a deadline (Rubinstein’s bargaining game). ECOS3012 - Strategic Behavior (USYD) Extensive Form Games - continued Lecture 8, April 20, 2011 2 / 9
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Incredible Threats I Consider the following game and its strategic form. (Toy model of interaction between a monopoly incumbent and an entrant.) A B o 2,6 i 3,2 c f -1,1 f c o 2,6 2,6 i -1,1 3,2 I This game has two Nash equilibria (i,c) and (o,f). I Can we say if one equilibrium is more reasonable prediction than another? I Consider equilibrium (o,f). If B is called upon to play, we expect she plays f. But is this credible ? Will she really play f if actually faced with that prospect? I No. The equilibrium (o,f) is based on the incredible premise that B will actually carry out her threat. I
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week10-class - Extensive Form Games - continued ECOS3012 -...

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