Lecture 1 Introduction to Game Theory 2010

# Lecture 1 Introduction to Game Theory 2010 - Introduction...

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Introduction An Experiment What is Game Theory? Theory of Rational Choice ECON 4109H LECTURE 1 INTRODUCTION TO GAME THEORY September 19, 2010 ECON 4109H LECTURE 1

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Introduction An Experiment What is Game Theory? Theory of Rational Choice Class Outline An Experiment What is Game Theory? Examples of Games Theory of Rational Choice ECON 4109H LECTURE 1
Introduction An Experiment What is Game Theory? Theory of Rational Choice An Experiment Each student submits a number between 0 and 100. Any student whose submitted number is closest to 1/2 of the average wins. ECON 4109H LECTURE 1

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Introduction An Experiment What is Game Theory? Theory of Rational Choice 1 The average cannot be above 100 2 So no one should choose anything above 50. 3 Now suppose everyone reasoned that way. 4 The no one should choose anything above 25. 5 ... Then no one should choose anything above 13. 6 ... Then no one should choose anything above 7. 7 ... Then no one should choose anything above 4. 8 ... 9 ... Then you should choose 0. 10 But we just saw that the winning number was bigger than 0. ECON 4109H LECTURE 1
Introduction An Experiment What is Game Theory? Theory of Rational Choice What is Game Theory? Game theory is a field which deals with strategic interaction: By this, is meant any situation in which people make decisions which affect one another, and people must reason about which decision to make based on their forecast about the decisions of others. ECON 4109H LECTURE 1

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Introduction An Experiment What is Game Theory? Theory of Rational Choice Examples of Games/Game Theory Applications 1 Guess 1 / 2 of the average. 2 Firms competing for business. 3 Political candidates competing for votes. 4 Jury members deciding on a verdict. 5 Bidders participating in an auction. 6 Legislators voting behavior under pressure from interest groups. 7 Animals fighting over prey. ECON 4109H LECTURE 1
Introduction An Experiment What is Game Theory? Theory of Rational Choice Theory of Rational Choice Game theory studies the interlocking decisions of several decision makers.

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