MAT 1374 Lecture Notes - Lecture 4: Tragedy Of The Commons
Document Summary
Re: definition of rationality: when someone acts in such a way that maximized (expected) utility. Thus being rational means making mathematically optimal decisions for optimal results. These games have offers which you can accept or reject for a cost; an ultimatum. Getting any money is favorable so may as well accept even the smallest offer, which is 25 cents. It is not rational to not accept even the smallest offer. If there"s more than one round, the situation is changed. Should use backwards induction to think about the end of the game prior to making your first move. People don"t always choose the theoretically optimal strategy/equilibrium strategies. The game may be too difficult to find the equilibrium strategy, there may be time constraints, people may have a lack of understanding, and lastly there can be other factors, such as psychological, social, cultural and ethical. It analyzes how perfectly rational people play and it is concerned with finding theoretically optimal solutions.