ECON10004 Lecture Notes - Lecture 10: Strategic Dominance, Sequential Game, Simultaneous Game
Microeconomics Week 10
LECTURE 19: GAME THEORY
Gae theo odels ae “hakespeaea i atue. “tat splittig eooi pole
into three parts:
1. Environment: who are the actors influencing decisions, what info do they have, their
goals
2. Market mechanism: rules of game
3. Strategic action: how are individuals responding to each other
Types of Games
1. Simultaneous Games: a static situation in which all individuals make their decision
once at the beginning of the game without observing any other actions
2. Sequential Games: a dynamic situation where games have a sequence of moves with
new information being transmitted about past actions
Important concepts:
• Strategy: a oplete set of deisios i espose to the othe plaes’ deisios i
every contingency
o If you write your strategy down properly, you can give it to anyone and they
can play just like you no matter that happened in game
o Can be pure when players choose their actions with certainty
o Can me mixed when players choose their actions with some randomness
• Equilibrium: he eah plae hooses a stateg that is a est espose to
strategies of other players
Strictly Dominant Strategy: a strategy that provides the player with a strictly higher payoff
than all other strategies
• Rational platers will always pick this if it exists
• In games where all players have a strictly dominant strategy, the equilibrium should
comprise strictly dominant strategy
Weakly Dominant Strategy: a strategy that provides the player with no lower payoff than all
the other strategies
• Rational players will always pick this if it exists and is the best response
• In all games where all players have a weakly dominant strategy, the equilibrium
comprises weakly dominant strategies
Dominated Strategy: one that provides the player with lower payoff than any other strategy
• Rational players will never pick this
• If a strictly or weakly dominant strategy exists, all other strategies must be strictly or
weakly dominated
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Important concepts: strategy: a (cid:272)o(cid:373)plete set of de(cid:272)isio(cid:374)s i(cid:374) (cid:396)espo(cid:374)se to the othe(cid:396) pla(cid:455)e(cid:396)s" de(cid:272)isio(cid:374)s i(cid:374) every contingency. Strictly dominant strategy: a strategy that provides the player with a strictly higher payoff than all other strategies: rational platers will always pick this if it exists. In games where all players have a strictly dominant strategy, the equilibrium should comprise strictly dominant strategy. Weakly dominant strategy: a strategy that provides the player with no lower payoff than all the other strategies: rational players will always pick this if it exists and is the best response. In all games where all players have a weakly dominant strategy, the equilibrium comprises weakly dominant strategies. Dominated strategy: one that provides the player with lower payoff than any other strategy: rational players will never pick this. If a strictly or weakly dominant strategy exists, all other strategies must be strictly or weakly dominated.
