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Lecture 5

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University of Toronto St. George
Political Science
Nathalie Fournier

Rational Choice and Game Theory For all the games - see the accompanying power point file which includes the relevant lecture slides. • Rationality: the ability to assess alternatives, and choose a policy which leads to an outcome that offers maximum utility (with minimum cost). • Preferences: Representation of the relative utility an actor derives from various outcomes; can be measured ordinally or cardinally; most models of rational choice focus on the order of preferences rather than their subjective cardinal valuation. • Expected utility: What is the benefit that each actor is likely to gain by adopting a certain strategy? For each action, determined by multiplying the probability and the utility for each possible outcome. It is used to help rank actors’ preferences over all outcomes in game theory. • Game theory: modeling the interaction of decision-makers via strategic games; allows each player to be affected by the expected actions of all players. Each player tries to predict the next move of the other actors and plan his/her best response to that move (mainly through backwards induction). • Nash equilibrium: a pair of strategies (an outcome) for which neither player can unilaterally alter their strategy in order to improve his/her position. Actors can improve their respective payoffs only if they can negotiate a simultaneous change in both their strategies. A very stable outcome. • Coordination game: typified by different, yet non-conflicting preferences. Example: battle of the sexes. Possible solu
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