ECO316H1 Study Guide - Winter 2019, Comprehensive Midterm Notes - Time, Strategy (Game Theory), Stag Hunt
Document Summary
Analytical tools to study situations in which decision makers interact. "game" because we use metaphor of a game to describe strategic situations. Game theory is used to understand situations in which decision makers interact. Will cover basic theory with emphasis on applications in economics. We need to capture essence to develop economic insight. Is increased competition between firms better for consumers. How do party positions in electoral campaign depend on voter preferences. Can markets with asymmetric information be improved by regulation. Party with highest willingness to pay receives item. Will concentrate on models in which decision makers are rational. Actions are best according to preferences, given constraints. Theory of rational choice: action chosen by decision maker is at least as good, according to preferences, as every other action available. If we have no information about the decision maker"s preferences, any single action is consistent with theory. Rationality comes from consistency of decisions when faced with different sets of available actions.
