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Chapter 14 - Game theory and the economics of information. In this chapter students will be able to: Understand the basics of game theory: a mathematical technique to study choice under conditions of strategic interaction; describe the prisoner’s dilemma and its applicability to oligopoly theory as well as many other situations; show how limited price information affects price dispersion for a product;. | MICROECONOMICS: Theory & Applications By Edgar K. Browning & Mark A. Zupan John Wiley & Sons, Inc. 12th Edition, Copyright 2015 Chapter 14: Game Theory and the Economics of Information Prepared by Dr. Della Lee Sue, Marist College Learning Objectives Understand the basics of game theory: a mathematical technique to study choice under conditions of strategic interaction. Describe the prisoner’s dilemma and its applicability to oligopoly theory as well as many other situations. Explore how the outcome in the case of a prisoner’s dilemma differs in a repeated-game versus a single-period setting. Analyze asymmetric information and market outcomes in the case where consumers have less information than sellers. (continued) Learning Objectives (continued) Explain how insurance markets may function when information is imperfect and there is the possibility of either adverse selection or moral hazard. Show how limited price information affects price dispersion for a product. Investigate . | MICROECONOMICS: Theory & Applications By Edgar K. Browning & Mark A. Zupan John Wiley & Sons, Inc. 12th Edition, Copyright 2015 Chapter 14: Game Theory and the Economics of Information Prepared by Dr. Della Lee Sue, Marist College Learning Objectives Understand the basics of game theory: a mathematical technique to study choice under conditions of strategic interaction. Describe the prisoner’s dilemma and its applicability to oligopoly theory as well as many other situations. Explore how the outcome in the case of a prisoner’s dilemma differs in a repeated-game versus a single-period setting. Analyze asymmetric information and market outcomes in the case where consumers have less information than sellers. (continued) Learning Objectives (continued) Explain how insurance markets may function when information is imperfect and there is the possibility of either adverse selection or moral hazard. Show how limited price information affects price dispersion for a product. Investigate advertising and the extent to which it serves to artificially differentiate products versus provide information to consumers about the availability of products and their prices and qualities. 14.1 GAME THEORY Understand the basics of game theory: a mathematical technique to study choice under conditions of strategic interaction. Game Theory Game theory – a method of analyzing situation in which the outcomes of your choices depend on others’ choices, and vice versa Elements common to all game theory: Players – decision makers whose behavior we are trying to predict and/or explain Strategies – the possible choices of the players Payoffs – the outcomes or consequences of the strategies chosen Determination of Equilibrium Payoff matrix – a simple way of representing how each combination of choices affects players’ payoffs in a game theory setting Dominant strategy – a case where a player is better off adopting a particular strategy regardless of the strategy adopted by the other
