Ch. 14: Game Theory – Flashcards

a set of tools that economists, political scientists, military analysts, and others use to analyze players' strategic decision making

any competition between players (such as individuals or firms) in which strategic behavior plays a major role

a move that a player makes at a specified stage of a game (i.e. how much output to produce)

a battle plan that specifies the action that a player will make conditional on the information available at each move and for any possible contingency

the players' valuation of the outcome of the game, such as profits for firms or utilities for individuals

a set of actions a player takes to increase his or her payoff, taking into account the possible actions of the other players

referring to the rules of the game; every player knows that each player's payoff depends on the actions taken by all players and that all the players want to max their payoffs

a player's optimal strategy depends on the actions of others; situation in which game theory is used

determine the timing of players' moves and the actions that players can make at each move

determines any player's payoff given the combinations of actions by all players

games where the payoff function is common knowledge among all players

the player who is about to move knows the full history of the play of the game to this point and that information is updated with each subsequent action

one in which each player acts only once and the players act simultaneously; (complete info about the payoff functions but imperfect information about the rivals' moves)

where players move either sequentially or repeatedly

player knows the full history of prior rules of a dynamic game

where some player is uncertain about the other players' payoff function

the normal-form representation of a static game

a strategy that produces a higher payoff than any other strategy the player can use for every possible combination of its rivals' strategies;

all players have dominant strategies that lead to a profit that is inferior to what they could achieve if they cooperated and pursued alternative strategies

the strategy that maximizes a player's payoff given its beliefs about its rivals' strategies

a set of strategies where, when all other players use these strategies, no player can obtain a higher payoff by choosing a different strategy

each player chooses a single action (assigns a probability of 1 to a single action)

a player chooses among possible actions according to probabilities it assigns

used to analyze dynamic games; specifies the n players, the sequence in which they make their moves, the actions they can take at each move, the information that each player has about players' previous moves, and the payoff function over all possible strategies

played once; occurs in a single period (simultaneous)

a game in which a single-period, simultaneous-move game is repeated at least twice

demonstrates the role of sequential moves; shows the order of the firms' moves, each firm's possible actions at the time of its move, and the resulting profits at the end of the game

consists of all the subsequent decisions that players may make given the actions already taken

formed by a set of strategies; the players' strategies are a Nash equilibrium in every subgame

used to solve for the subgame perfect Nash equilibrium; first determine the best response by the last player to move; next determine the best response for the player who made the next to last move; repeat the process until reahing the move at the beginning of the game

a firm's announced strategy which rivals must believe to be rational/ in the firm's best interest to use

the players know all the moves from previous periods, but they do not know each other's moves within any one period because they all move simultaneously

a sale in which a good or service is sold to the highest bidder

ascending bid; lowest to highest price; price to highest bidder

descending bid auction; ends dramatically with the first bid

everyone submits a bid simultaneously without seeing anyone else's bid; highest bidder win

the winner pays the amount bid by the second-highest bidder

a good where each potential bidder places a different personal value

a good that has some fundamental but unknown value to everyone

the auction winner's bid exceeds the common-value item's value; occurs when there is uncertainty about the good's value