Game - Speak Noncooperative games Players Rules of the game Order (who chooses when) Chance (moves by nature) Information set (who knows what … and when) Payoffs Strategic Form Games Strategies Strategy profiles (possible outcomes)
More Game - Speak • Extensive Form Games Decision Trees • If – then strategies • Backwards induction • Dominance: strict / weak • Iterated dominance • Constant Sum Games – Zero Sum Games • Prisoner’s Dilemma • Nash Equilibrium • Easy coordination / Chicken • Mixed Strategies
Nash Equilibrium • No player by herself can improve her payoff by moving to a different strategy, given the strategies chosen by other players. Nash covers Smith • Pursuit of self-interest by each player on her own won’t result in socially desirable outcome when individuals don’t pay for the harm their actions cause others … when scarce resources are “free.”
Nash EquilibriumTime and Newsweek Prices Time optimally sets its price, PT PT = $1.50 + .50 PN Newsweek optimally set its price, PN PN = $1.50 +.50 PT • When PT = $3.00, Newsweek wants to set its price to $3.00. • When PN = $3.00, Time wants to set its price to $3.00.