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Chapter 4 - Game Theory - EMO

This document summarizes key concepts from Chapter 4 of a game theory textbook. It introduces the Prisoner's Dilemma as an example of a simultaneous-move game where players choose actions without knowing the other's choice. Nash equilibrium is defined as strategies where no player benefits by changing their strategy given the others'. In the Prisoner's Dilemma, confessing is the sole Nash equilibrium. The Hotelling game models product differentiation, with vendors locating in the middle of the beach as the Nash equilibrium. Football kickoff strategies are also analyzed, finding a mixed strategy Nash equilibrium where each side is chosen with 50% probability.

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Ivan Bejin
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73 views2 pages

Chapter 4 - Game Theory - EMO

This document summarizes key concepts from Chapter 4 of a game theory textbook. It introduces the Prisoner's Dilemma as an example of a simultaneous-move game where players choose actions without knowing the other's choice. Nash equilibrium is defined as strategies where no player benefits by changing their strategy given the others'. In the Prisoner's Dilemma, confessing is the sole Nash equilibrium. The Hotelling game models product differentiation, with vendors locating in the middle of the beach as the Nash equilibrium. Football kickoff strategies are also analyzed, finding a mixed strategy Nash equilibrium where each side is chosen with 50% probability.

Uploaded by

Ivan Bejin
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Chapter 4: Game Theory

4.1 The Prisoner’s Dilemma


o gives thew utilities for each combination of prisoner’s decisions
o example of a simultaneous-move game
 game where all players move simultaneously (do not observe the other players
actions before choosing their own
 set of players; the actions they can take; information they possess when they
decide which action to take; utility they obtain given their own actions & actions
of others

4.2 Nash Equilibrium


 solution of simultaneous games
o strategies constitute a nash equilibrium if none of the players has a reason to choose
another strategy given the other players’ strategies
 in prisoners they play a pure strategy because they both choose to confess
o player’s best response against the strategies by other players – maximizes his payoff
given the choices by the other players
 (confess, confess) is the only pure-strategy nash equilibrium
o systematically identifying the best responses of all players against all actions of the
opponents


 two nash equilibria

4.3 Hotelling Game


 players choose from more than two actions
o infinitely many alternatives
o continuous games are complicated to analyze, Nash equilibria still found though by
looking for combinations of strategies that are best responses for each player against
the strategies of all others
 Hotelling game to study interactions between firms regarding product differentiation
o where the two ice cream vendors position on a beach – consumers walk to the closes
stand
 both would best locate exactly in the middle, after a few moves (if they start at
the end, the other one just goes right next to him and takes customers, so after
a few rounds they both get to the middle – Nash
 similar stores tend to cluster, in the real world
 elections of 2 parties – both opinions in the middle to attract most
 in reality, price decides more – if competitor next to you – incentive to lower
the price

4.4 Football


o no nash equilibrium on pure strategies, but there still is a Nash
 both players choose either side with probability ½ - Nash equilibrium = in any
case, changing the probability is not making the players better off

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