ECON 1000 Chapter Notes - Chapter 15: Marginal Cost, Nash Equilibrium, Normal-Form Game
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ECON 1000 Full Course Notes
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Game theory set of tools for studying strategic behavior. Payof matrix: table that shows payofs for every possible acion by each player, table 15. 1 pg. Nash equilibrium: player a & b takes best acion possible given that they know each other"s decision. This is done by eliminaing the worst choices. Finding the nash equilibrium: both sides confess to minimize years in jail, dominant-strategy equilibrium. Best strategy of each player is to cheat (confess, even if you didn"t do it) regardless of the strategy of other player (confess no mater what) One side does not know what the other side will do. A & b cannot trust each other, so they end up confessing: although both denying would get them only 2 years, not 3 years of prison. This is similar to irms in oligopoly: an oligopoly price-fixing game. Two irms produce switch gears: they are perfect subsitutes for each other as their product and market price is idenical.
