Chapter13b

We study three equilibrium concepts in econ 203

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We study three equilibrium concepts in Econ 203: Dominant strategy equilibrium. Nash equilibrium. Sub-game perfect Nash equilibrium.

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Equilibrium of a Game Dominant Strategy Equilibrium. Dominant strategy equilibrium. Consider the following game: The players: Player 1 and Player 2 Timing of a game: Simultaneous . Information Availability: Perfect. Possible strategies: Player 1 (L;R) and Player 2(U;D) The payoffs associated with each combination of strategies (table below) Repetition: Non - repeated. The decision rule: Max own payoff. Equilibrium: (Player 1, Player 2) = (R;D) with payoff (6,3) Player 2 (U) (D) Player 1 L (2,2) (4,4) R (0,1) (6,3)
Equilibrium of a Game Nash Equilibrium. Dominant Strategy does not always exist. The Nash equilibrium (NE) Set of strategies (one for each player) such that no player wishes to change her strategy given the strategies of the other players The strategy of each player is a so-called best response to the given strategies of the other.

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Equilibrium of a Game Nash Equilibrium. Nash equilibrium. Consider the following game: The players: Player 1 and Player 2 Timing of a game: Simultaneous . Information Availability: Perfect. Possible strategies: Player 1 (L;R) and Player 2(U;D) The payoffs associated with each combination of strategies (table below) Repetition: Non - repeated. The decision rule: Max own payoff. Nash Equilibria: (Player 1, Player 2) = (R;U) and (L;D) with payoff (3;6) and (6;3) Player 2 (U) (D) Player 1 L (0,2) (6,3) R (3,6) (0,2)
Equilibrium of a Game Nash Equilibrium. Consider the following game: The players: Player 1 and Player 2 Timing of a game: Sequential with Player 1 moves first. Information Availability: Perfect. Possible strategies: Player 1 (L,R) and Player 2(UU,UD,DU,DD) The payoffs associated with each combination of strategies (table below) Repetition: Non - repeated. The decision rule: Max own payoff. Equilibria: (Player 1, Player 2) = (R;U,U), (L;U,D), (L;D,D) with payoff (3;6), (6;3) and (6;3) 1 equilibrium is not valid…which one?

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Equilibrium of a Game Nash Equilibrium.
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