game theory

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  • 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

interesting studies