BEPP 250 Lecture Notes - Lecture 15: Game Theory, Nash Equilibrium, Rationality
26 Mar 2015
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Document Summary
Bepp 250 - business & economic public policy - lecture 15: game theory. Game theory is a theory of behavior in strategic setting. Two types: static games (involving one decision like rock paper scissors) and dynamic. What is the well-being of each player conditional on the actions played in the game. Action: a move a player makes at a specific stage of a game. Strategy: a plan for every possible stage of the game & the action for a player conditional on information given. Strategy set: collection of all feasible strategies available to that player. Strategy profile: collection of strategies, one for each player. Payoff: measure of well being associated with outcome. Payoff function: assigns a payoff for every strategy profile. Rationality is common knowledge: everyone knows everyone is playing rationally. Game is common knowledge: everyone knows how to play the game and potential outcomes. Recall, this is when players simultaneously choose an action once.
