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Payo here need not be monetary payo social and

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Unformatted text preview: ayoff”. Payoff here need not be monetary payoff. Social and psychological factors influence payoffs and decisions. Nevertheless, the rational decision-making paradigm is useful because it provides us with a (testable) theory of economic and social decisions. We often need only ordinal information; i.e., two options a and b , and we imagine a preference relation � that represents the ranking of different options, and we simply check whether a � b or a � b . But in game theory we often need cardinal information because decisions are made under natural or strategic uncertainty. The theory of decision-making under uncertainty was originally developed by John von Neumann and Oskar Morgenstern. 4 Game Theory: Lecture 2 Introduction Decision-Making under Uncertainty von Neumann and Morgenstern posited a number of “reasonable” axioms that rational decision-making under uncertainty should satisfy. From these, they derived the expected utility theory. Under uncertainty, every choice induces a lottery, that is, a probability...
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This document was uploaded on 03/19/2014 for the course EECS 6.254 at MIT.

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