ECONOMICS 100A Professor Dan Acland11/02/10 Lecture 20ASUC Lecture Notes Online is the only authorized note-taking service at UC Berkeley. Do not share, copy, or illegally distribute (electronically or otherwise) these notes. Our student-run program depends on your individual subscription for its continued existence.These notes are copyrighted by the University of California and are for your personal use only. D O N O T C O P Y Sharing or copying these notes is illegal and could end note taking for this course. ICLICKER QUIZ ANNOUNCEMENTS 1.The course outline has been revised. See end of lecture notes. 2.Problem Set #5 has been shortened (only 3 questions) but not postponed. See bSpace. LECTURE Slide: Lecture outline: 1.Dynamic games (aka sequential move games). A.Strategies versus actions. B.Subgame perfect equilibrium. C.Backwards induction. D.Another example. 2.One-shot prisoner’s dilemma.A.Equilibrium in dominant strategies. (A peculiar subset of Nash Equilibrium.) B.The essence of the game. (Seeing a game as a generalizable model.) 3.Repeated prisoner’s dilemma.A.Unraveling of cooperation. B.Trigger-stategies and Tit-for-Tat. (Can infinity and a bad attitude save the day?) 4.The case for government intervention. A.Realigning incentives vs. taking over the game. The last time we met, we talked about static games, where players move simultaneously. We talked about the concept of the Best Response (BR)function. We also talked about the concept of Nash equilibriumas a pair of strategies that are mutual BR to each other: each player is doing the best he can, given what the other player is doing at equilibrium. The game that we focused on last time was this game that I call “Battle of the Sexes,” which, in the book, Nechyba sets up as two people trying to figure out which side of the road to drive on, given that one person is from England and one of them is from America. We figured that out with simultaneous moves last time. L R L 3, 3 0, 2 R 2, 0 1, 1 So I’m going to use this game to try to see what happens when you make the game dynamic. In this case, Player 1 will go first, and Player 2 will follow. Most of the machinery is the same; the concept of Nash Equilibrium is going to stay the same. Because it’s dynamic, we’re going to make the machinery more complex, but the solution is going to be much simpler. Slide: 1. Dynamic games A.Strategies versus actions. -A strategy is a plan of action for every node of the game, even if you never actually reach certain nodes. Now, I’ve renamed this game “Meet Me on the Battlefield.” George Bush is Player 1 and Tony Blair is Player 2. They’re trying to decide where they should meet with their armies. Blair prefers to go to Afghanistan because he has a long history Player 1 Player 2
has intentionally blurred sections.
Sign up to view the full version.