Logistics
Go through syllabus overview, emphasizing:
mathematical background (no econ needed);
differences from other game theory classes;
grading policy, including midterm date (Mon Oct 27) and final exam (Fri Dec
12, 8:30 11:30 AM)
Textbooks
Tadelis is the most advanced undergrad book, its good but not deep enough
Fudenberg-Tirole is the standard grad book, not ideal for a first course
So the main source is the lectures; Ill post outlines and Xin will write more
detailed notes as class goes along
Will play a few games in class, with Xin administering
Ill try to learn who everyone is, but it will take a while; you are encouraged to come
to office hours
A 1, 1 0, 0
B 0, 0 1, 1
(explain matrix notation for finite two-player games)
Anti-coordination or matching pennies game (applications could include generals choosing where to attack and defend, or two firms, with one stronger than
the other, deciding what products to market):
H
H 1, 1 1, 1
T
1, 1 1, 1
Prisoners dilemma
C
C 2, 2 0, 3
D 3, 0 1, 1
Applications include any kind of simultaneous favor exchange, e.g. offering to
do an errand for a friend thats convenient for you; or not littering in the park.
Usually associated with the silly prisoner story
Dominance
We want to predict how people will behave in games
One prediction: people wont do something if theres something else obviously better. Specifically, say action ai strictly dominates ai if ui (ai , ai ) > ui (ai , ai ) for
every ai Ai .
We usually are comfortable predicting that people wont play something strictly
dominated
Example: in prisoners dilemma, C strictly dominates D. So we predict (D, D) as
the unique outcome. Note that both players nonetheless prefer (C, C).
If players can foresee others rationality, we can sometimes predict more. Example:
the follow your crush to lunch game. 1 = you, 2 = your crush, A and B are places
to eat lunch. You like A better, but mostly just want to be near your crush; crush
likes B better and doesnt care about you.
A
A 4, 0 1, 1
B 0, 0 3, 1
Iteratively deleting dominated strategies gets us to (B, B).
Will study this process in more detail next week....
Nash equilibrium
In many games, nothing is dominated. But would still like to make some kind of
prediction.
Some predictions better than others. For example, in coordination game, if we
confidently predicted (A, B), we shouldnt be so confident, since either player would
like to change.
N ash equilibrium: a strategy profile a A such that ui (a) ui (ai , ai ) for all i and
all ai Ai .