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# Class Note for EconS 452 with Professor Marsh at WSU 05

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This 3 page Class Notes was uploaded by an elite notetaker on Friday February 6, 2015. The Class Notes belongs to a course at Washington State University taught by a professor in Fall. Since its upload, it has received 22 views.

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Date Created: 02/06/15
O ECONS 452 Advanced Business Management Economics Lectures 1718 Game Theory Overview I Introduction to Game Theory ll SimultaneousMove OneShot Games Ill ln tely Repeated Games IV Fi ely Repeated Games V Multistage Games Game Environments Players planned decisions are called strategies Payoffs to players are the pro ts or losses resulting from strategies order of play is important Simultaneous moveogarne each player makes decisions without knowledge other players decisions Sequentialmove game one player observes its rivals move priorto selecting a strategy Frequency of rival interaction Oneshot game game is played once Repeatedngarne game is la ed more than once eithera nite ori lnite number i eractions quotE SimultaneousMove OneShot Games Normal Form Game 39 A Normal Form Game consists of Set of players is 1 2 n where n is a finite number Each players strategy set or feasible actions consist of a nite number of strategies Payer1 s strategies are s Player 2 s strategies are 52 Payoffs Player 1 s payoff was 39 Plaver 2 s pavoff mIb C A Normal Form Game Player 2 Slralegyiv B a 1112 b 1011 c 1013 Player 1 Normal Form Game Scenario Analysis I Suppose1 thinks 2 will choose A Player2 Slralegyr B C j a 1112 1413 a b 1011 1212 5 c 1013 1314 Normal Form Game Scenario Analysis IThen 1 should choose quota I Player 1 s best response to quotAquot is Normal Form Game Scenario Analysis a I Suppose1 thinks 2 will choose quotaquot I Player 2 Player 2 SLMEQY A C C 1211 1413 a a 1110 1212 E 7 c 1015 1314 w Normal Form Game Scenario Analysis I Then 1 should choose quota Player 1 s best response to quotBquot is quota PlayerZ Slrate i A a b c C Player 1 Normal Form Game Scenario Analysis I Similarly in thinks 2 will choose C Player 1 s best response to quotCquot is quota PlayerZ Strate I A B a 1211 1112 b 1110 1011 c 1015 1013 Player 1 Dominant Strategy Regardless ofwhetherPlayerZ chooses A la or clgtlayer1 is better off choosing a a is Playerl s Dominant Strategy PlayerZ in b 1110 1011 1212 9 c 1015 1013 1314 Dominant Strategy in a SimultaneousMove OneShot Game I A dominant strategy is a strategy resulting in the highest payoff regardless of the opponent s action I lfquota is a dominant strategy for Player 1 in the previous game then 39 AAA gt MINA 2 1clA 39 1MB gt MILE 2 10313 and 11aC gt mop 2 11cC Putting Yourself in your Rival s Shoes I What should player 2 do 2 has no dominant strategy The Outcome PlayerZ But 2 should reason that1 will play aquot A B c Therefore 2 should choose C Q a 12v 3912 Played g b 1110 1011 1212 039 039 339 g 39 This outcome is called a Nash equilibrium E b 1110 1011 1212 a is player 1 s best response to C m C 1015 1013 1314 quotCquot is player 2 s best response to a W TwoPlayer Nash Equilibrium Key lns39ghts I The Nash equilibrium is a condition describing the set of strategie n which no player can improve her payoff by unilaterally changing her own strategy given the other player s strategy I Formally 11s1 s2 2 11s1s2 for all s1 39 M51352 2 1551352 for aquot 52 I Look for dominant strategies I Put yourself in your rival39s shoes

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