1. Game - Speak Noncooperative games Players Rules of the game –Order (who chooses when) –Chance (moves by nature) –Information set (who knows what … and when) Payoffs Strategic Form Games –Strategies –Strategy profiles (possible outcomes)

2. More Game - Speak Extensive Form Games  Decision Trees –If – then strategies –Backwards induction Dominance: strict / weak –Iterated dominance Constant Sum Games – Zero Sum Games Prisoner’s Dilemma Nash Equilibrium –Easy coordination / Chicken Mixed Strategies

3. Dominance Harry or Condi on Cover? Newsweek HarryCondi TIMETIME Harry35,3570,30 Condi30,7015,15

4. Iterated Dominance Harry, Condi, or Albie? Newsweek HarryCondiAlbie TIMETIME Harry70,3030,1020,40 Condi50,1050,3030,20 Albie60,2020,2010,10

5. Nash Equilibrium No player by herself can improve her payoff by moving to a different strategy, given the strategies chosen by other players. Nash covers Smith Pursuit of self-interest by each player on her own won’t result in socially desirable outcome when individuals don’t pay for the harm their actions cause others … when scarce resources are “free.”

6. Nash Equilibrium Prisoner’s Dilemma Tchaikovsky ResistConfess KONDRASHINKONDRASHIN Resist3,325,1 Confess1,2510,10

7. Nash Equilibrium Easy Coordination Column Strategy 1 Strategy 2 ROWROW Strategy 10,05,5 Strategy 215,150,0

8. Nash Equilibrium Chicken Khrushchev DareFold KENNEDYKENNEDY Dare-100,-10020,0 Fold0,200,0

9. Nash Equilibrium Time and Newsweek Prices Time optimally sets its price, P T P T = $1.50 +.50 P N Newsweek optimally set its price, P N P N = $1.50 +.50 P T When P T = $3.00, Newsweek wants to set its price to $3.00. When P N = $3.00, Time wants to set its price to $3.00.

10. The Bar Scene John and Joe Choose If chosen by one If chosen by both Score Probability Of Score Expected Value Probability Of Score Expected Value Sally10.22.11 Jane7.32.1.151.05 Mary7.32.1.151.05

11. The Bar Scene Nash Equilibrium and Mixed Strategies John SallyJaneMary JOEJOE Sally1,12,2.1 Jane2.1,21.05,1.052.1,2.1 Mary2.1,22.1,2.11.05,1.05