ECON 3M03 Lecture Notes - Lecture 3: Solved Game, Expected Utility Hypothesis, Utility
Document Summary
Challenge chance posses to players of a game. Chance played no role in the previous chapter. In this chapter, we look at what happens in a game when chance does play a role. The notion of payoff needs to be extended to that of expected payoff when there is the chance factor. Player 1 faces a risky situation: win with probability 0. 5, lose with probability 0. 5. Player 0 will always represent chance in a game. Its strategy is not decided in the way that a true player"s is. Only player 1"s payoffs appear on the game tree. Player 1 has payoffs but no strategy since she is in the mercy of chance. Player 0 (also called nature) determines which outcome materializes. Win a with prob 1/2 or loose with prob 1/2. Prob of outcome lies along branch of tree.