ACTG 4P11 Chapter Notes - Chapter 9: Nash Equilibrium, Cooperative Binding, Moral Hazard
Document Summary
Models a conflict situation between rational players (more than 1 player) Takes into account any uncertainty arising from random realization of states of nature, taking into account the actions of other players. Two games include: cooperative binding agreement (e. g. cartel, non-cooperative (e. g. oligopolistic industry) Difficult to envision a binding agreement between manager and investor about what. Nash equilibrium is the strategy choice where each player is content with his or her specific information is to be supplied strategy (refer to example 9. 1 page 330) Single-period game model relates to the accounting and auditing scandals: e. g. Why would enron executives choose the cooperative solution bh when there is a higher payoff at bd. Multi-period game results in selecting bh as players need to consider: 5-period game where if parties do not trust each other, game unravels to single- period game, manager reputation and ethical behaviour, folk theorem.
