Ch 6 - Games

Games where players aim to maximise their payoff and know the entire structure of the game. Decisions are made simultaneously and independently.

Dominant Strategy - regardless of what action the other player takes one strategy is always better than all others.

Player wish to maximise payoff so not socially optimal - PRISONER’S DILEMMA

Best Response - the best choice for one player, given the belief about the strategy other player will take.

Nash Equilibrium - when one strategy is best response to another and vice versa. Exists when no player has an incentive to change their strategy as they will be worse off.

Mixed Nash Equilibrium - allows randomisation of actions and looks at the probability with each player chooses an action meaning we now have a set of strategies.

Focal Points act as a means for choosing between multiple equilibria - external and internal factors.

Pareto Optimality - no other choice of strategies where all players receive the same payoff and at least one player receives a higher payoff.

Social Optimality - maximises sum of the players payoff.
Extensive Form Games - player make choices one after each other and always choose action that maximises their payoff. Equilibrium in game tree is called SUBGAME PERFECT EQUILIBRIA which is a NE in normal form but may not be the case vice versa. In normal form players can pre commit to actions which cannot occur in extensive form games.

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Eco and Soc Networks Apunte sobre Chapter Notes [1], creado por cheekymonky52 el 12/04/2013.