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Game Properties: 1. Players 2. A set of moves (or strategies) available to players 3. Payoffs for each combination of strategies Study of Economic phenomena: Auctions, Bargaining Duopolies Oligopolies Social network formation Voting systems

About Extensive Form Each player can be said to have a set of preferred moves based on eventual goals and the attempt to gain a the maximum payoff, and the extensive form of a game lists all such preference patterns for all players. Games involving some level of determination are examples of extensive form games.

Game Types Normal Form – matrix setup includes all strategies of each player and payoffs for each strategy profile are represented.

For example, if player 1 plays top and player 2 plays left, player 1 receives 4 and player 2 receives 3. In each cell, the first number represents the payoff to the row player (in this case player 1), and the second number represents the payoff to the column player (in this case player 2).

Symmetric game is a game where the payoffs for playing a particular strategy depend only on the other strategies employed, not on who is playing them. Prisoner's dilemma is a type of non-zerosum game in which two players can "cooperate" with or "defect" (i.e. betray) the other player. In this game, as in all game theory, the only concern of each individual player ("prisoner") is maximizing his/her own payoff, without any concern for the other player's payoff.

Asymmetric games are games where there are not identical strategy sets for both players. Ultimatum game: two parties interact anonymously and only once, so reciprocation is not an issue. The first player proposes how to divide a sum of money with the second party. If the second player rejects this division, neither gets anything. If the second accepts, the first gets her demand and the second gets the rest. Dictator game: the first player "the proposer" determines an allocation (split) of some endowment (such as a cash prize). The "responder" in this case simply receives the remainder of the endowment not allocated by the proposer to himself.

A normal form game already has a complete list of all possible combinations of strategies and payoffs, thus removing the element of player choices. In a normal form game, the best move is always known. Extensive Form – tree setup A list of players The names of players moving at each node A set of allowable actions at each node Payoffs specified at each node

Unlike normal form games, it is easy to depict sequential moves by players in extensive form games. For example, here is a game where Player 1 moves first, followed by Player 2:

Zero sum games are a special case of constant sum games, in which choices by players can neither increase or decrease the available resources. Poker exemplifies a zero-sum game (ignoring the possibility of the house's cut), because

one wins exactly the amount one's opponents lose. GAME ELEMENTS Game A conflict in interest among n individuals or groups (players). A set of rules that define the terms of exchange of information and pieces, Conditions under which the game begins Possible legal exchanges in particular conditions. The entirety of the game is defined by all the moves to that point, leading to an outcome. Moves The way in which the game progresses between states through exchange of information and pieces Moves are defined by the rules of the game and can be made: Alternating fashion Occur simultaneously for all players Occur Continuously for a single player …until he reaches a certain state or declines to move further. Moves may be: Choice Chance Information State Perfect information is when all moves are known to all players in a game. Imperfect information where players are unaware of information Games without chance elements like chess are games of perfect information, while games with chance involved like blackjack are games of imperfect information. Strategy A strategy is the set of best choices for a player for an entire game. It is an overlying plan that cannot be upset by occurrences in the game itself. Payoff The payoff or outcome is the state of the game at it's conclusion. In games such as chess, payoff is defined as win or a loss. In other situations the payoff may be material (i.e. money) or a ranking as in a game with many players.

Nash Equilibrium No player in the game would take a different action as long as every other player remains the same. Nash Equilibria are self-enforcing; when players are at a Nash Equilibrium they have no desire to move because they will be worse off. Occurs when each player's strategy is optimal, given the strategies of the other players. A player's best response (or best strategy) is the strategy that maximizes that player's payoff, given the strategies of other players. A Nash equilibrium is a situation in which each player makes his or her best response.

Economic situations & Gaming A player's payoff is the amount that the player wins or loses in a particular situation in a game. A players has a dominant strategy if that player's best strategy does not depend on what other players do.

**Economic Applications of Game Theory Cheating on a cartel Trade wars between countries Advertising Cheating on a Cartel
**

Cartel members' possible strategies range from abiding by their agreement to cheating. Cartel members can charge the monopoly price or a lower price. Cheating firms can increase profits. The best strategy is charging the low price. Matrix

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