ECO 304K Chapter Notes - Chapter 9: Nash Equilibrium, Normal-Form Game, Strategic Dominance
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ECO 304K Full Course Notes
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Basic elements: players, possible actions/strategies each player has, payoffs the player receives for each strategy. Payoff matrix: table describing payoffs in a game for each combination of actions, summarizes relevant info in a game. Dominant strategy: yields a high payoff regardless of what actions the other players choose: resulting payoffs are smaller than original. Dominated strategy: any additional strategy offered to a player who already has a dominant strategy: leads to a lower payoff than an alternative choice, regardless of what other players choose. Nash equilibrium: named after john nash, mathematician. Developed the idea: game is in equilibrium if a player"s choice is the best possible option based on the other player"s decisions. In equilibrium, players do not have an incentive/motivation to change the current strategy. Prisoner"s dilemma: each player has a dominant strategy resulting payoffs are smaller than what would have occurred if each player played a dominated strategy.
