Econ101 Final Essays

Econ101 Final Essays - Q1 Sequential-move game is showed...

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Q1. Sequential-move game is showed in a game tree form, where players take turns choosing actions (extensive form), while simultaneous-move game is represented in a matrix, where players simultaneously choose their actions (normal form). The strategies of a simultaneous game are simply their actions since nobody can decide his behavior base on what the other has done (unlike sequential game). Trees are used to represent sequential games, because they show the order in which actions are taken by the players. Matrices, unlike trees, simply show the outcomes, represented in terms of the players' utility functions, for every possible combination of strategies the players might use. The two sorts of games are not equivalent, because extensive-form games contain information—about sequences of play and players' levels of information about the game structure—that strategic-form games do not. Q2. A Nash equilibrium is a situation where all players play such strategies that no one could attain a higher utility by playing a different strategy (no player would want to unilaterally change his/her behavior). The strategies can either be pure or mixed (which need to be calculated with probability into the pure strategies). A Pareto optimal outcome is the one such that no one could be made better off without making someone worse off. A Nash equilibrium isn’t necessary a Pareto optimal outcome. An example would be in a Prisoners’ Dilemma game. If player 1 and player 2 are silent (-1,-1), PL1 Rat and PL2 Silent (0,-10), PL1 silent and PL2 Rat (-10,0), and both players Rat on each other (-5,-5).
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