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Unformatted text preview: Econ 101 Microeconomic Theory Professor Jernej Copic Handout for TA section: week 3 Hyo Sang Kim KEY IDEAS • An allocation is Pareto efficient if it is not possible to devise an alternative allocation in which at least one person is better off and no one is worse off. – There might be many Pareto efficient allocations. – It doesn’t say much about the distribution of resources. For example, one individual getting everything can be a Pareto efficient allocation. • a player is said to use a mixed strategy whenever he she chooses to randomize over the set of available actions. On the other hand, a player is said to use a pure strategy if she chooses one action or another with certainty. • a mixed strategy Nash equilibrium is a mixed strategy profile that no player would have an incentive to deviate from her equilibrium strategy profile and choose something else. EXERCISES 1. (Ultimatum game) Consider the following two player game in extensive form. Player 1 proposes how to divides 4 dollars between them, and then player 2 can either accept or reject this proposal. If player 2 rejects, neither player receives anything. If player 2 accepts, the money is split according to the proposal. 1 Econ 101 Microeconomic Theory Professor Jernej Copic (a) Find the subgame perfect Nash equilibrium....
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- Spring '08
- Game Theory, player, strategy Nash equilibrium, Jernej Copic