ECON 201 1st Edition Lecture 16 I Game Theory Game The results of one person s actions depend on others A Strategies in Games 1 Pure strategy is a specific action taken by a player 2 Mixed strategy is a probabilistic action with different weights or probabilities assigned to each action a Sometimes answers our questions in class and sometimes doesn t in order to get students to study on own Sly s mixed strategy 3 Dominant Strategy is an action that is the best that a player can choose regardless of what another player chooses B Games and Playoffs 1 Advertising game a b Numbers come from estimates c Managers are hired to determine what to play d If player 2 chooses Don t Advertise then player 1 chooses to Advertise and earns 15 e If player 2 chooses to Advertise then player 1 chooses to Advertise and earns 10 f Then Player 1 has dominant strategy to advertise g Player 2 s best response is to advertise h Does either player have an incentive to deviate from advertising i Neither player wants to deviate this game has an equilibrium because no one has an incentive to deviate ii Whenever you analyze a game you should ask the question does either player have an incentive to deviate 2 Now suppose the payoffs were different These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute a b If player 2 chooses Don t Advertise then player 1 will choose Don t Advertise c If player 2 chooses advertise then player 1 will choose advertise d Player 1 does not have a dominant strategy it doesn t stay the same regardless of what their competitor does e Suppose both player choose Advertising i Does player 1 benefit from deviating NO ii Does player 2 benefit from deviating No iii Thus Adv Adv is a Nash Equilibrium iv Thus Don t Adv Don t Adv is not a Nash Equilibrium 3 Prisoner s Dilemma a b If player 2 chooses to confess then player 1 will choose to confess c If player 1 chooses confess then player 2 will choose to confess d Does either player have an incentive to deviate from confess confess NO confess confess is a Nash Equilibrium e The first best payoff of the game is not optimal f EX Batman 2 ferry boats have a detonator to the other boat i If you blow the other boat up first you won t get blown up and vice versa ii BUT if neither of you blow the other boat up then no one gets blown up and no one dies In games as opposed to markets in which your payoff is determined by the actions by others your economic concept is not to deviate Nash Equilibrium
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