question

solution concept for games in extensive forms and with finite time horizon that starts from the last decision node and works backwards to the first one.

answer

Backward induction

question

coordination game with at least two equilibria, none of them Pareto dominating due to the different preferences (meeting at the party or at the pub).

answer

Battle of sexes

question

Such a game involves a move of nature determining what type players are. A Bayes-Nash (or simply 'Bayesian') equilibrium is a strategy profile that prescribes optimal behaviour for each and every type of a player, given the other player's strategies and given beliefs about other player's types.

answer

Bayes-Nash equilibrium

question

principle for calculating conditional probabilities. It starts from the notion that the (unconditional) probability of a joint even XY is the conditional probability for X given that Y has actually occurred times the (unconditional) probability of Y.

answer

Bayes' rule

question

optimal move (in terms of individual preferences) in response to a possible move of opponent; most important aspect of Nash equilibrium.

answer

Best response

question

finitely repeated entry deterrence game. Using backward induction it follows that in every round, the weak monopolist has no incentive to fight, despite the number of repeats. If asymmetric information prevails, a weak monopolist should randomize between fighting and conceding while a strong monopolist should always fight.

answer

Chain-store paradox

question

coordination game with multiple Nash equilibria, but each player prefers a different equilibrium outcome. Players have options to surrender or challenge the other. Who stays longest - wins, 'chicken' - backs down.

answer

Chicken game

question

when a person can compare any two options (or outcomes) to say which one is preferred or whether they are equally liked.

answer

Complete preferences

question

sum of all payoffs is always constant, regardless of the combination of strategies. If the payoff sum is positive, all players can win, although the distribution will generally be unequal. A special case is a zero-sum game , where one player's gain is the loss of the others.

answer

Constant-sum game

question

players are able to make binding commitments (possibly via third parties). - non-cooperative: players cannot make binding commitments; hence they will act in their personal rather than collective interests (e.g. PD-games).

answer

(Non-)Cooperative game - cooperative

question

game with at least two equilibria. In a pure coordination game, there is no conflict of interest and players are indifferent between equilibria. In order to realize one of those equilibria, players have to coordinate their strategies.

answer

Coordination game

question

game in which the strategy set of at least one player is infinite (example: Cournot's duopoly model).

answer

Continuous strategies game

question

model where two firms compete in the same market, in which each firm selects the quantity that maximizes its profit in response to any (expected) output decision of the opponent. The so derived reaction function is a forerunner of the best response functions, which intersect at a fixed point forming a Nash equilibri-um.

answer

Cournot's duopoly model

question

when it is known that to stick to the commitment is a dominant strategy when it due; i.e. when it is in the own interest of the person who announces it to fulfil the commitment (problem of time inconsistency).

answer

Credible commitment

question

description of a game played against 'nature' (decision theory);payoff matrix - description of a game played against other actors (game theory).

answer

Decision matrix

question

strategy that gives the highest payoff regardless an opponent's move.

answer

Dominant strategy

question

strategy that regardless of opponent's move give lower payoff than another strategy, so that no rational player would choose it.

answer

Dominated strategy

question

a paradox in decision theory in which people's choices violate the 'sure-thing' principle of Savage's subjective expected utility theory. (Urns with red and black balls).

answer

Ellsberg's paradox

question

sequential game with two firms: A considers entering the market, B can fight or back down in response (see also chain-store paradox).

answer

Entry deterrence game

question

probability weighted average of the payoffs corresponding to alternative outcomes of an action.

answer

Expected value (EV)

question

probability weighted average of the utilities of payoffs corresponding to alternative outcomes of an action.

answer

Expected utility (EU)

question

player that moves first in a sequential game can determine the outcome of the game.

answer

First mover advantage

question

mechanism to choose between alternative Nash equilibria, introduced by Thomas Schelling in 1960 ('Strategy of Conflict').

answer

Focal point

question

state that in any infinitely repeated game an equilibrium exists that gives each player an average payoff that is not lower than their maximin payoff in the stage-game provided players are sufficiently patient. They are called 'folk theorems' be-cause nobody knows who first invented them into game theory.

answer

Folk theorems

question

1. players (strategies and preferences); 2. rules; 3. information; 4. payoffs.

answer

Four elements of strategic games:

question

sequential game in extensive form, where trust is placed or not placed and the trustee may have a temptation to abuse; one-sided prisoners' dilemma (David Hume's problem).

answer

Game of trust

question

graphical representation of a sequential game (extensive form), which provides information about the players, payoffs, strategies, and the order of moves. It consists of nodes, which are points at which players take actions, connected by edges, which represent the actions that may be taken at that node. Terminal nodes represent an end to the game where the payoffs earned by each player are shown.

answer

Game tree

question

Set of decision nodes at a given stage in a game between which a player is unable to distinguish.

answer

Information set

question

game which is played several times (repeated game) and that allows for a strategy to be contingent on past moves and thus for reputation effects and retribution.

answer

Iterated game

question

representation of a random game specifying by vector of possible outcomes with prescribed probabilities.

answer

Lottery

question

maximising minimum profits.

answer

Maximin

question

minimising maximum loss.

answer

Minimax

question

refers to external effects and random outcomes together with the distribution of probabilities of different scenarios.

answer

Move of nature

question

fixed point where the best response of one player is mapped into the best responses of the other players.

answer

Nash equilibrium

question

non-cooperative game, where the dominant strategy of each player leads to a Pareto inefficient outcome.

answer

Prisoners' dilemma

question

expectations that are correct on average (stochastic fulfilment of expectations).

answer

Rational expectations

question

behavioural assumption, where players have consistent preferences and expectations and act according to their best interest; a strong version of rationality assumes that actors know everything that can be known and make no mistakes.

answer

Rationality

question

function that shows the best response of one firm to any action taken by its rival; special case of best response function in terms of Cournot's duopoly game.

answer

Reaction function

question

Subtree of an extensive form game that fulfils the following criterion: If a decision node belongs to the subtree then all decision nodes which are in the same information set belong to the subtree. Note that the whole game tree is always a regular subtree of itself.

answer

Regular subtree

question

shows that a shared bill in a restaurant tends to be higher than if each person pays one's own bill; version of the 'tragedy of the commons'.

answer

Restaurant-bill game

question

player is prepared to pay less than the expected gain to enter the game (prefers sure thing to a gamble with the same expected value).

answer

Risk aversion

question

player is indifferent between a sure thing and a gamble with the same expected value.

answer

Risk neutrality

question

player is prepared to pay more than the expected gain to enter the game (prefer a gamble to a sure thing with the same expected value).

answer

Risk loving

question

agreement that is a Nash equilibrium in a game.

answer

Self-enforcing agreement

question

selfish preferences do not take into account the outcome of one's actions on other persons; altruistic or hostile preferences take such effects into account, positive in the first, negative in the second case.

answer

Selfish, altruistic and hostile preferences

question

game in which players make decisions in a certain predefined order, and in which at least some players can observe the moves of players who preceded them. This type of games is represented by game trees (extensive form) and solved using the concept of backward induction and (if required) additional concepts such as subgame perfect equilibrium.

answer

Sequential game

question

game where one player sends signals to other players in order to influence their move, e.g. a job candidate suggest to the potential employer what wage is ap-propriate for him given his education (whisky vs. tonic game).

answer

Signalling game

question

game with infinite expected value, but actually people are willing to pay only a very small amount to play it.

answer

St. Petersburg paradox

question

Payoff matrix; extensive form - Game tree.

answer

Strategic (normal) form

question

pure: a tuple of definite moves/actions a player assigns to each of his information sets; mixed: a probability distribution defined over the pure strategy of a player. A player would only use a mixed strategy when she is indifferent between pure strategies.

answer

Strategy

question

a regular subtree together with the corresponding payoffs.

answer

Subgame

question

Strategy, the relevant parts of which are best responses of a player in every subgame of the game.

answer

Subgame perfect strategy

question

Nash equilibrium corresponding to a profile of subgame perfect strategies.

answer

Subgame perfect Nash equilibrium

question

all possible paths a game can take starting from a particular decision node. Note that the whole game tree is a subtree of itself.

answer

Subtree of an extensive form game

question

Expected utility with subjective probabilities.

answer

Subjective expected utility

question

Pivotal axiom in Leonard Savage's (1954) subjective probability theory. It demands a decision maker to neglect potential events for which the outcome is equal across options.

answer

Sure-thing principle

question

Phenomenon that occurs when it is not in the best interest of a player to carry out a threat or promise that was initially designed to influence the other player's actions.

answer

Time (or dynamic) inconsistency

question

strategy in an infinitely repeated prisoners' dilemma game: cooperate until partner defects, then defect, but when partner shows readiness to go back to cooperation, also change back to cooperation.

answer

Tit-for-Tat ('this for that')

question

title of a famous article by Garrett Harding (1968). Problem of common (or open-access) resources provoking free-rider behaviour which is a variant of the prisoners' dilemma; there exists no excludability to use the resource; the result is tragic because all loose.

answer

Tragedy of the commons

question

A strategy that is not dominated and dominates all other strategies for some strategies profiles of all other players.

answer

Weakly dominant strategy

EC364: Game Theory in Economics, Business & Finance – Flashcards

Unlock all answers in this set

Haven't found what you were looking for?

Search for samples, answers to your questions and flashcards