[ECON 306] - Final Exam Guide - Comprehensive Notes fot the exam (90 pages long!)
Document Summary
In the last chapter we were introduced to some basic concepts of game theory- chapter 13 dives a little deeper into these concepts. Games allow us to model people (and firms) strategic interactions with one another. We tend to model static games using payoff matrices. Organizing payoffs this way helps us determine optimal strategies and allows us to predict the outcomes of games (given that all players act rationally). A game is a situation in which players make strategic decisions that take into account each other"s actions and responses to return the highest payoff. Optimal strategy: one that maximises expected payoffs: determining optimal strategies can be difficult, even under conditions of complete symmetry and perfect information, often, the optimal strategy is different in each type of game. Payoff: value associated with a possible outcome: payoffs must be profits for firms or some value associated with winning an auction, or may be thought of as losses as in the prisoner"s dilemma.
