16 Backward induction reputation and duels分析和总结分析和总结.docxVIP

Game Theory: Lecture 16 Transcript Overview: In the first half of the lecture, we consider the chain-store paradox. We discuss how to build the idea of reputation into game theory; in particular, in setting like this where a threat or promise would otherwise not be credible. The key idea is that players may not be completely certain about other players payoffs or even their rationality. In the second half of the lecture, we stage a duel, a game of pre-emption. The key strategic question in such games is when; in this case, when to fire. We use two ideas from earlier lectures, dominance and backward induction, to analyze the game. Finally we discuss two biases found in Americans: overconfidence and over-valuing being pro-active. October 31, 2007 back Professor Ben Polak: So this is what we did last time: we looked at a game involving an entrant and an incumbent in a market; and the entrant had to decide whether to enter that market or not; and if they stayed out the incumbent remained a monopolist; and the monopolist made 3 million in profit. If the entrantgoes in, then the incumbent can decide whether to accommodate the entrant and just settle for duopoly profits, making a million each; or the incumbent can fight, in which case the incumbent makes no money at all and the entrant loses a million dollars. We pointed out a number of things about this game. One was that when we analyzed it in a matrix form wequickly found that there were two NashEquilibria, that Nash Equilibrium were: in and not fight; and out and fight. But we argued that backward induction tells us that the sensible answer is in and not fight. Once the incumbent knows the entrant is in theyre not going to fight because 1 is bigger than 0, and the entrant anticipating this will enter. When we talked a little bit more we said this other equilibrium, this out fight equilibrium--it is an equilibrium because if the entrant believes the incumbents going to fight then the entrant is going to stay out, and it