Microeconomics II-1: introduction to game theory
Fiches d'apprentissage et de révisions
Fiches d'apprentissage et de révisions
Kartei Details
| Karten | 26 |
|---|---|
| Sprache | English |
| Kategorie | VWL |
| Stufe | Universität |
| Erstellt / Aktualisiert | 17.02.2020 / 02.10.2023 |
| Weblink |
https://card2brain.ch/box/20200217_microeconomics_ii1_introduction_to_game_theory
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| Einbinden |
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This course is a way to
cover topics on
public economics,
industrial organisation,
behavioral and experimental economics as well as
political economics.
“The major pleasures of the social sciences stem from
an elementary property of human beings:
Man is capable of producing more complex behavior
than he is capable of understanding…”
Our economic environment is characterized by interdependence of decision-making
– An agent’s well-being depends on the choices of other agents
– An agent’s best choice depends on what other agents do.
Infinite regress
• You lose your friend at a Museum.
• You: “Where would I go if I were him?”
• Him: “Where would I go if I were her?”
• You need to think about what he thinks that you will do.
• And he needs to think about what you think that he
thinks that…
Game theory allows to
break the infinite regress
and say something useful
in presence of Strategic interactions.
Game theory sheds
insight on situations in economics, business, politics, and international relations
Strategic reasoning
when agents use a model of
other agents choices
to predict what they will do,
and then use that prediction
in deciding how to behave
Game theory
a mathematical tool
for assessing the implications
of strategic reasoning
price-matching guarantees can actually
raise prices
Minimum wage
In 1914, Henry Ford offered the unheard-of wage of $5 a day to workers in his automobile factories, more than double the going wage.
Þ His strategy may actually have increased the profits of the Ford Motor Company. How can higher labor costs increase profits ?
law
After the completion of a trial, the 12 jurors retire to the jury room. On the basis of their initial assessment, only 2 of them believe that the defendant is guilty. They start their deliberations by taking a vote.
Þ Each and every juror announces a vote of guilty. How can this happen?
International relations
Kim Jong-un has no desire to go to war against South Korea. President Trump does not know if Kim Jong-un wants to avoid war or not.
ÞCould it be best for Kim Jong-un to take actions which suggest that he is willing to use nuclear weapons on South Korea?
ÞShould president Trump take an aggressive stance and thereby call Kim Jong-un’s bluff, but at the risk of inducing Kim Jong-un to fire off nuclear weapons?
We focus on games where
players – strategy - outcomes - strategic interaction
how many players are they
There are 2 or more players
– There is some choice of action
where strategy matters
Outcomes
The game has one or more outcomes,
e.g., someone wins, someone loses
Strategic interaction
- The outcome depends on the strategies chosen by all players; there is strategic interaction.
Three Elements of a Game
Players, strategies, pay-offs
The players
– how many players are there?
– does nature/chance play a role?
Strategies
A complete description of the strategies of each player
Pay-offs
A description of the consequences (payoffs)
for each player
for every possible profile
of strategy choices of all players
All players behave
rationally.
– They try to obtain the highest possible payoff (select the best alternative for them => preferences).
– They are flawless in calculating which actions will attain this objective.
The rules of the game are
common knowledge:
– Each player knows the set of players, strategies and payoffs from all possible combinations of strategies: call this information “X.”
– Common knowledge means that each player knows that all players know X, that all players know that all players know X, that all players know that all players know that all players know X and so on,..., ad infinitum.
Nash Demand Game
– 10 people in a group
– 100 CHF are available for the group. You will choose how to split this amount
– You will simply claim the amount you wish, individually.
Nash Demand Game: rules
– If the sum of your demands >100 CHF: you all have 0.
– If the sum of your demands <= 100 CHF you each obtain your claim.
model of a Strategic Situation
Extensive and Strategic Forms
