game theory
Contents
4.8. game theory#
Backward Induction – start at the ends and consider the last moves for each player until the beginning is reached
Dominating strategy – always gives a better payoff regardless of other player
Weakly dominating strategy – always at least as good
Mixed strategy – active randomization with given probabilities that determines players decision
Nash equilibrium - no player can unilaterally (without the other player changing) change his strategy and get a better payoff
Prisoner’s Dilllema has dominant strategy of both complying
in a repeated game, this inefficiency can be fixed
Quality choice game – provider and buyer can each offer high or low bandwidth
Two Nash equilibria
In an evolutionary game, which equilibrium is picked is based on what percentage of each the provider expects
Over time, the buyer will mimic whatever the provider is providing
Mixed strategies – compliance inspections
The percentage of the time that the inspector should inspect is based on the incentive / penalty that the buyer will cheat
It has a mixed equilibrium, based on probabilities
Player’s willingness for risk and other factors are considered when determining numbers for utility
Many games have first-mover advantage: such as firms determining how much of a product to produce
There are games with imperfect information- ex. Deciding whether to announce or cede
Bidding in auctions – one of the main uses of game theory
You should bid how much you are willing to pay
Winner’s curse – if you win an auction for something with common value, you probably overvalued it