4-3-2012Lecture 1:1A certain degree of algebra is required for the course- complete the practice problem online for referenceToday we are going to work on an example problem to give you a preview of how the Political Science 30 is going to be this quarter:ex. Strategy in Campaign (US Congress: House of Representatives)- incumbency advantage- lots of fundraising especially by incumbentso huge part of their job- incumbents don’t like fundraising thougho and it seems like they don’t need to (due to incumbency advantage) →why do it then? THAT is the PUZZLE.Game Theory: Strategic Interaction 3 Aspects of what makes an interaction “strategic”1) more than 1 person with different preferences(disagreement)2) each person can affect the outcome(interdependency)3) people anticipate each other’s choices and responsesif you anticipate, then you are a strategic player(you take into account how others will react)3 Focuses in Game Theory1) Preferences: what do people want?2) Strategies: what can each person do?3) Outcomes: how do individual choices create outcome(*hardest. varies from situation to situation)Game Theory- Analysis- Communication (gives us the framework for communicating assumptions)Game Tree: sequentialdecision node: choiceRF Not branch: one option terminal nodes: 4 optionsRF Not RF Not3 decision scenarios(Inc: 1 , Chal: 2)- outcomes: connects strategies to preferences- outcomes = stakes of situation - candidates (both incumbent + challenger): want to win the election- they also don’t want to raise funds- Elements of the Outcome- want to win election (win = +7)- don’t want to raise funds (raising funds = -2)- outcomes don’t actually appear in Game Tree- counterfactuals: what could happen but doesn’t- understanding the counterfactuals is important in Game Theory because it is critical in explaining puzzles- →the prediction is explained by the counterfactualRF NotStrategic Equivalents (5, 0) (0, 5)counterfactual RF Not RF NotInc wins Inc wins Chal wins Inc wins(5, -2) (5, 0) (0, 5) (7, 0) payoffs*SET UP THE WHOLE GAME (TOP-DOWN & MAKE PAYOFFFS)BEFORE SOLVING IT (BOTTOM-UP. BECAUSE OF THE ANTICIPATED)Game Theory is good for:- those who are experts at making high stake decisions- politicians- decisions made over and over againIncChal ChalIncChal