Games & Strategic Behavior
Games & Strategic Behavior ECON 22060-002
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This 1 page Class Notes was uploaded by Amy Turk on Friday May 20, 2016. The Class Notes belongs to ECON 22060-002 at Kent State University taught by Dr. Ludmila Leontieva in Spring 2016. Since its upload, it has received 10 views. For similar materials see Microeconomics in Economcs at Kent State University.
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Date Created: 05/20/16
GAMES AND STRATEGIC BEHAVIOR ● repeated prisoner’s dilemma = confronts the same players not just once but many times ● cartel agreements are difficult to maintain ○ each cartel member has an incentive to undercut it’s competitor’s price in order to capture the entire market ● three basic elements of a game… ○ the payoffs each player receives ○ the strategies available to each player ○ the players ○ tit-for-tat = players cooperate on the first move and then mimic their partner’s last move on each successive move ■ effective at limiting defection in computer simulations but not real-world cartel agreements ○ dominant strategy = yields a higher payoff no matter what the other players in the game choose ○ prisoner’s dilemma = game where every player has a dominant strategy and if each plays it, the resulting payoffs are smaller than if each had played a dominated strategy ○ if a player has a dominant strategy, then any other strategy available to that player is a dominated strategy ○ cartel = coalition of firms that agree to restrict output for the purpose of earning an economic profit ○ players face a commitment problem when they cannot achieve their goals because of an inability to make credible threats and promises ○ Nash equilibrium = any combination of strategy choices in which each player’s choice is his or her best choice, given the other player’s choices ○ commitment device = changes incentives to make otherwise empty threats or promises credible ○ payoff matrix = a table that describes the payoffs in a game for each possible combination of strategies ○ dominated strategy = has a lower payoff than an alternative choice, regardless of the other player’s choice ■ dominant strategy = has a higher payoff no matter what ■
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