A tool for modeling strategic interactions Game Theory A tool for modeling strategic interactions

Parts to a Game A set of players A set of actions available to each player A payoff function that specifies how actions are mapped into payoffs for each player

A Penalty Kick in Soccer Players = (Kicker, Goalie) Actions for Kicker - (Kick Left, Kick Right) for Goalie – (Defend Kick Left, Defend Kick Right)

A Penalty Kick in Soccer Payoffs – Kicker wins if Goalie guesses wrong and looses if Goalie guesses correctly. Goalie payoff is the opposite.

Normal Form Game A table that graphically represents all of the parts to a game.

Normal Form Game Kicker Goalie Kick Left Kick Right Defend Kick Left A table that graphically represents all of the parts to a game. Players Kicker Goalie Kick Left Kick Right Defend Kick Left W,L L,W Defend Kick Right

Normal Form Game Kicker Goalie Kick Left Kick Right Defend Kick Left A table that graphically represents all of the parts to a game. Actions Kicker Goalie Kick Left Kick Right Defend Kick Left W,L L,W Defend Kick Right

Normal Form Game Kicker Goalie Kick Left Kick Right Defend Kick Left A table that graphically represents all of the parts to a game. Payoffs (row player’s payoff listed first) Kicker Goalie Kick Left Kick Right Defend Kick Left W,L L,W Defend Kick Right

Today’s Experiment Get into 10 groups of people (3-4 per group). Communication between groups is not allowed. Your points are based upon the number of points that your group earns. Your points are the sum of your payoffs from the games. For each game you will be playing against another randomly selected group from the class.

Game of Chicken Other You Chicken Tough 4,4 2,10 10,2 0,0

Network Effects – Walkie Talkie Other You Don’t Buy Buy 4,4 4,0 0,4 8,8

Game of Trade Other You Trade No Trade 6,6 0,10 10,0 4,4

Driving Game Other You Left Side Right Side 10,10 0,0

Cartel Game – Output Level Other You Low High 8,8 5,10 10,5 6,6

Location Game Other You Little Rock Fayetteville 2,2 10,5 5,10 1,1

Rock Paper Scissors Other You Rock Paper Scissors 5,5 0,10 10,0