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Lecture 13(ii) Announcements None
Lecture on Game Theory
1. The Simple Version of the Battle of the Sexes 2. The Battle of the Sexes with Some Strategic Moves 3. Rock Paper ‘Scissors 4. Chicken 5. Duopoly
Recall Prisoner’s Dillemma
Nash Equlilibrium: Both Confess In this game confessing is a
dominant strategy
Robinson
Stay Silent
Confess
Stay Silent
F gets 8 Friday
Confess
R gets 8 R gets 20
R gets 1 R gets 0
F gets 20 F gets 1
F gets 0
T
SsiLeea
M
he B
uppomultet’s fach
WaFoo
WaSY
Male
Battl
ose tanefigurplay
atch otball
atch YTTD
e of
the teouslre ouyer
l
M ge
Watc
M ge
f the
two ply maut the
ets 3
ch Foo
F ge
F ge
ets 0
Sex
playake e op
F
otball
ets 1
ets 0
xes
ers theirtima
ema
W
M
M
r choal stra
ale
Watch
F
F
gets
gets
oice.ateg
SYTT
F gets
gets
1
0
gy for
TD
s 0
3
r
Look at incentives for the male player: Suppose he thinks girl is going to watch football.... Suppose he thinks the girl is going to watch SYTTD.
Look at incentives for the female player: Suppose she thinks guy is going to watch football.... Suppose she thinks the guy is going to watch SYTTD...
What are the Nash Equilibria of this simultaneous-move game?
Let’s change the game so that the action is sequential. Girl moves first. Sends text message to guy about her decision. Then guy moves. What is the equilibrium outcome now if the guy rationally optimizes given the girl’s choice? First Mover Advantage
Lets change it one more time. Like above, girl picks show before guy, and sends text message to guy, after picking her show.. But before the girl picks her show, the guy makes a deal with all his friends that if any of them hears that he watched SYTTD, they all will defriend him on Facebook. Suppose the guy really likes having Facebook friends, and if he is defriended by all the guys he suffers a loss of 10. After this move, the payoffs look like:
If w
Nea
M
Theguy
when
Now wach
WaFoo
WaSY
Male
e Baty is dn he
workplay
atch otball
atch YTTD
ttle odefriwatc
k ouyer i
l
M ge
Watc
M ge
of thendches
ut thes fo
ets 3
ch Foo
F ge
F ge
ets 0 − =
e Seed fs SY
e eqrwar
F
otball
ets 1
ets 0
−10 −10
exesrom
YTTD
quilibrd-lo
ema
W
M
M
s D.
briumookin
ale
Watch
F
F
gets
gets
m whng a
SYTT
F gets
gets
1 − 1= − 9
0
hen nd
TD
s 0
3
0
assumes the other player will play rationally, given the choices already made by the other player. To solve this, need to work backwards and look at the endgame. Suppose guy strikes the deal with his friends to defriend him if he watches SYTTD. Then regardless girl’s choice, in the endgame, guy will choose __________ Anticipating guy’s behavior, girl will choose _________
Anticipating how girl will respond to pact with friends, guy will make the pact. This move on the guy’s part is something like the famous example of Cortez burning his ships after landing in Mexico in 1519. He was playing a game with his soldiers. Fighting the Aztec Indians then became a better option for the soldiers than retreating back to the ships. This is a taste of game theory. More than being fun and interesting, it is a powerful tool for social scientists to study important strategic interactions. (Mention this because this is a Social Science Core Class)
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2015 debt ceiling negotiations Obama took credible position not to give anything Tea party took credible position to run out of town a house speaker to could raise the debt ceiling Equilibrium of this endgame: The then speaker (John Boehner) and to say he was going to resign, and then get debt ceiling raised before new speaker Paul Ryan took the job.
Duopoly In Econland Goldy and Bucky have entered Widgit
business
With perfect comp, get Q =___ P=___ With monopoly, get Q = ___, P = ___ What happens with duopoly? It depends. Let’s look at some cases.
-2-10123456789
10
0 1 2 3 4 5 6 7 8 9 10
D
MC=ATC
MR
1. Have to post prices, stay that way for the entire day. 2. Have to be a round number. 3. Buyers buy from the lowest price firm. If prices the same, then the sellers split the market. 4. For now, look at prices 6 and 5. Let’s suppose we have the scenario above. Let’s work out what happens. We will need to map this into the prisoner’s dilemma payoff matrix from the previous lecture.
Payoff Matrix How Profit Depends Upon
Both Actions
Goldy P = 5
P = 6
P = 5
B gets ucky
P = 6
G gets G gets
G gets G gets
B gets B gets
B gets
Suppose both set P = 6. Then total quantity is Q = 4, and the split it 50/50, so q = 2 for each. Profit for each is____ So put this in Payoff Matrix when both set P = 6.
-2-10123456789
10
0 1 2 3 4 5 6 7 8 9 10
D
MC=ATC
MR
Suppose both set P = 5. Then total quantity is Q = 5, and they split the market 50/50, so q = 2.5 for each. Profit for each is ______ So put this in the Payoff Matrix for the profit each gets when both set P = 5. If one sets P=5 and the other P=6.
Looking at this payoff matrix, we see: Dominant Strategy? If could cooperate?
Other prices? 1. P = 7 is monopoly price. But.... 2. P = 4? So Nash Equilibrium is....
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