ECON 1 Lecture 14:
Document Summary
Key words: cooperation, trust, fairness, ultimatum game, social neuroeconomics, punishment, antisocial punishment. Game theory develops mathematical models to analyse the outcomes that will emerge in multiparty decision-making contexts if all parties act rationally. Outline conditions that define how decisions are to be made. Attach utility measures of outcomes for each player to every possible combination of player moves. People are logical and only driven by their self-interest. Pro: given absolute rationality, gives the most precise prescriptive advice available to negotiators. Con: rationality is not given + hard to provide all possible options. Cooperation means not telling the police anything. Game theory makes a very specific prediction about what dan and joe both do if they are rational people: defection. Nash equilibrium combination of strategies that cannot be improved upon as long as the other player sticks with their chosen strategy. In prisoner s dilemma the nash equilibrium is joint defection.
