ECON10004 Study Guide - Final Guide: Fundamental Solution, Nash Equilibrium, Strategic Dominance
Players choose their actions in isolation, with no information about what other players have done or
will do
A player can reason through the game from the perspective of her opponent to determine her
opponent's best play
Games with simultaneous moves
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Normal form/strategic form
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Dimension = no. of players
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Size of table = no. of strategies available to players
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Represented diagrammatically using a game table (game matrix/payoff table)
Zero
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sum vs non
-
zero
-
sum games:
In a two
-
player zero
-
sum game, list in each cell payoff to first player
In a non
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zero
-
sum game, separately show a payoff for each player in each cell
Zero
-
sum = constant
-
sum
Non
-
zero
-
sum = variable
-
sum
Constructing a game table:
First player's strategies are used to label rows
Second player's strategies are used to label columns
Payoffs are shown in each cell
Illustrating simultaneous
-
move games
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Nash equilibrium:
Equilibrium of a general non
-
cooperative game is a configuration of strategies such that each
player's strategy is best for him
At a Nash equilibrium, each player must be satisfied with the strategy choice he has made/no player
should want to change his strategy
Fundamental solution concept for noncooperative games
Pure strategies specify nonrandom courses of action for players
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Mixed strategies specify that an actual move will be chosen randomly from the set of
underlying pure strategies with specific probabilities
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Nash equilibrium strategies in simultaneous
-
move games are either pure or mixed
Beginning with least general method that works for only a small class of games, but easiest to
apply
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Increasingly more general but less easy methods
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Methods of identifying pure
-
strategy Nash equilibrium can be ranked in order of generality and
difficulty
Nash equilibrium
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Document Summary
Pla(cid:455)e(cid:396)s (cid:272)hoose thei(cid:396) a(cid:272)tio(cid:374)s i(cid:374) isolatio(cid:374), (cid:449)ith (cid:374)o i(cid:374)fo(cid:396)(cid:373)atio(cid:374) a(cid:271)out (cid:449)hat othe(cid:396) pla(cid:455)e(cid:396)s ha(cid:448)e do(cid:374)e o(cid:396) (cid:449)ill do. A pla(cid:455)e(cid:396) (cid:272)a(cid:374) (cid:396)easo(cid:374) th(cid:396)ough the ga(cid:373)e f(cid:396)o(cid:373) the pe(cid:396)spe(cid:272)ti(cid:448)e of he(cid:396) oppo(cid:374)e(cid:374)t to dete(cid:396)(cid:373)i(cid:374)e he(cid:396) oppo(cid:374)e(cid:374)t"s (cid:271)est pla(cid:455) Rep(cid:396)ese(cid:374)ted diag(cid:396)a(cid:373)(cid:373)ati(cid:272)all(cid:455) usi(cid:374)g a ga(cid:373)e ta(cid:271)le (cid:894)ga(cid:373)e (cid:373)at(cid:396)i(cid:454)/pa(cid:455)off ta(cid:271)le(cid:895) Size of ta(cid:271)le = (cid:374)o. of st(cid:396)ategies a(cid:448)aila(cid:271)le to pla(cid:455)e(cid:396)s. I(cid:374) a t(cid:449)o-pla(cid:455)e(cid:396) ze(cid:396)o-su(cid:373) ga(cid:373)e, list i(cid:374) ea(cid:272)h (cid:272)ell pa(cid:455)off to fi(cid:396)st pla(cid:455)e(cid:396) I(cid:374) a (cid:374)o(cid:374)-ze(cid:396)o-su(cid:373) ga(cid:373)e, sepa(cid:396)atel(cid:455) sho(cid:449) a pa(cid:455)off fo(cid:396) ea(cid:272)h pla(cid:455)e(cid:396) i(cid:374) ea(cid:272)h (cid:272)ell. Fi(cid:396)st pla(cid:455)e(cid:396)"s st(cid:396)ategies a(cid:396)e used to la(cid:271)el (cid:396)o(cid:449)s. Se(cid:272)o(cid:374)d pla(cid:455)e(cid:396)"s st(cid:396)ategies a(cid:396)e used to la(cid:271)el (cid:272)olu(cid:373)(cid:374)s. E(cid:395)uili(cid:271)(cid:396)iu(cid:373) of a ge(cid:374)e(cid:396)al (cid:374)o(cid:374)-(cid:272)oope(cid:396)ati(cid:448)e ga(cid:373)e is a (cid:272)o(cid:374)figu(cid:396)atio(cid:374) of st(cid:396)ategies su(cid:272)h that ea(cid:272)h pla(cid:455)e(cid:396)"s st(cid:396)ateg(cid:455) is (cid:271)est fo(cid:396) hi(cid:373) At a nash e(cid:395)uili(cid:271)(cid:396)iu(cid:373), ea(cid:272)h pla(cid:455)e(cid:396) (cid:373)ust (cid:271)e satisfied (cid:449)ith the st(cid:396)ateg(cid:455) (cid:272)hoi(cid:272)e he has (cid:373)ade/(cid:374)o pla(cid:455)e(cid:396) should (cid:449)a(cid:374)t to (cid:272)ha(cid:374)ge his st(cid:396)ateg(cid:455) Nash e(cid:395)uili(cid:271)(cid:396)iu(cid:373) st(cid:396)ategies i(cid:374) si(cid:373)ulta(cid:374)eous-(cid:373)o(cid:448)e ga(cid:373)es a(cid:396)e eithe(cid:396) pu(cid:396)e o(cid:396) (cid:373)i(cid:454)ed.