Bài giảng Macroeconomics - Chapter 8: Games and Strategic Behavior

Chapter 8: Games and Strategic BehaviorDescribe the basic elements of a gameRecognize and show the effects of dominant strategies and dominated strategiesIdentify and explain the Prisoner's Dilemma and how it applies to real-world situationsExplain games in which the timing of players' choices matterDiscuss strategies that enable players to reap gains through cooperationGame TheoryBasic elements of a game:The playersTheir available strategies, actions, or decisionsThe payoff to each player for each possible actionA dominant strategy is one that yields a higher payoff no matter what the other player doesA dominated strategy is any other strategy available to a player who has a dominant strategyEquilibrium in a GameA Nash equilibrium is any combination of strategies in which each player’s strategy is her or his best choice, given the other player’s strategiesEquilibrium occurs when each player follows his dominant strategy, if it existsEquilibrium does not require a dominant strategyPrisoner’s DilemmaThe advertising example illustrates an important class of games called the prisoner’s dilemmaThe prisoner’s dilemma is a game in which each player has a dominant strategy, and when each plays it, the resulting payoffs are smaller than if each had played a dominated strategyPrisoner's DilemmaTwo prisoners are held in separate cells for a serious crime they did commitThe prosecutor lacks sufficient evidenceJasper's OptionsHorace's OptionsConfessDon't ConfessConfessHorace: 5 yearsJasper: 5 yearsHorace: 0 yearsJasper: 20 yearsDon't ConfessHorace: 20 yearsJasper: 0 yearsHorace: 1 yearJasper: 1 yearDominant strategyOptimal strategyCartelsA cartel is a coalition of firms that agree to restrict output to increase economic profitRestrict total outputAllocate quotas to each playerRepeated Prisoner's DilemmaIn a repeated prisoner’s dilemma the same players repeatedly face the same prisoner’s dilemmaBoth players benefit from collaborationTit-for-tat strategy limits defectionsA tit-for-tat strategy says my move in this round is whatever your move was in the last roundIf you defect, I defectTit-for-tat is rarely observed in the market This strategy breaks down with more than two players or potential playersSometimes Timing MattersOne party moves firstThe second can adjust his strategy accordinglyViper and Corvette hybrid models When timing does not matter, the payoff matrix shows no dominant strategyWhen timing matters a decision tree is a more useful way of representing payoffsA decision tree describes the possible moves in a game in sequenceA decision tree is sometimes called a game treeSimultaneous DecisionsDodge Viper's OptionsChevy Corvette's OptionsHybridNo HybridHybridChevy: $60 MDodge: $60 MChevy: $80 MDodge: $70 MNo hybridChevy: $70 MDodge: $80 MChevy: $50 MDodge: $50 M Profits are higher when each company offers a different type of car$80 million for Chevy$70 million for Dodge$70 million for Chevy$80 million for DodgeEF$50 million for Chevy$50 million for DodgeG$60 million for Chevy$60 million for DodgeDFinalOutcomeSuppose Dodge Moves FirstDodgedecidesAOffer hybridDon’t offerhybridBCOfferhybridDon’tofferhybridOfferhybridDon’tofferhybridChevroletdecidesThreats and PromisesA credible threat is a threat to take an action that is in the threatener's best interest to carry outAnalyze This and Tony Bennett's compensationA credible promise is a promise to take an action that is in the promiser's best interest to carry outCommitmentA commitment problem arises from an inability to make credible threats or promisesA commitment device changes incentives to make threats or promises credibleUnderworld code, OmertaMilitary-arms-control agreementsTips for waitersVarious business problems are commitment issuesSelf-Interest EvaluatedThere are exceptions to outcomes based on self-interestTips at out-of-town restaurantsRevenge Passing on "unfair" opportunitiesThe Role of PreferencesPreferences are givenAffect choices through Sympathy for an adversaryGenerosityHonestyIf preferences can be known to the other party, the commitment problem is reducedTrustworthy employeeCharacter JudgmentsIf character were known perfectly, businesses could avoid the costs of dishonesty, shirking, etc.Since people are victimized, make hiring mistakes, and so on, either Character cannot be judged perfectly ORCharacter information is expensive.Caveat EmptorThe payoff of deceitAdvantage to seeming honest while being dishonestGreater opportunitiesGreater exploitation of opportunitiesGames and Strategic BehaviorGame TheoryElementsEquilibriumDominant StrategyPrisoner's DilemmaCommitment ProblemsSequential Decisions