Behavioral eco lect 6: Strategic interaction part 1 (Agenda (Iterated…
Behavioral eco lect 6: Strategic interaction part 1
Three “puzzling” phenomena
Dutch postal code lottery
Contributing to the provision of public goods
Giving a tip to waiters
Iterated dominance in the guessing game
Social concerns in the ultimatum, dictator, and trust game
Limited strategic reasoning in the guessing game
Social concerns in the public good game
Today we will consider
: a list of strategies, one for each player, which specify a complete plan of action that describes what players will do under all possible circumstances.
: two or more agents/players who can influence each other’s payoffs.
: a strategy profile such that each strategy in the profile is a best response to the other strategies in the profile.
“everybody plays a best response against the strategies of the others.”
“given what all the others do, nobody has an incentive to deviate from his strategy.”
A sequential game can be represented in a decision-tree.
is a part of the game which starts at a node of the tree and that contains all nodes that come after this node. The “start- node” of this subgame has to be distinguishable from other nodes in the tree: once a player is in the node, he knows for sure he is in this node, i.e. he knows what has been played in previous nodes.
: a game with multiple stages.
is a strategy profile that constitutes a Nash equilibrium in each subgame.
A subgame-perfect equilibrium can be found by using
A subgame perfect equilibrium is a Nash equilibrium which rules out