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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 decisionmaking 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 decisionmaking under uncertainty was originally developed by
John von Neumann and Oskar Morgenstern. 4 Game Theory: Lecture 2 Introduction DecisionMaking under Uncertainty
von Neumann and Morgenstern posited a number of “reasonable”
axioms that rational decisionmaking 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.
 Spring '10
 AsuOzdaglar

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