Lecture 3
Social interaction: a situation involving more than one person/party, where one’s actions affect both
their own and other people’s outcomes.
Strategic interaction: a social interaction where people are aware of the ways that their actions affect
others.
Parts of a game (model of strategic interaction);
- Strategy; actions that people can take when engaging in a social interaction
- Players; who are involved
- Feasible strategies; actions each player can take
- Payoffs; outcomes for every possible combination of actions
- Information; what each player knows when choosing their action
Best response: strategy that yields the highest payoff, given the other player’s strategy (look at when
the other player chooses A, do you choose A or B).
Dominant strategy: a best response to all possible strategies of the other player. Sometimes it
doesn’t exist. (a combination of the best responses when the other player chooses A, or chooses B).
But if there is a dominant strategy, you will stick to this and won’t change your choice.
Dominant strategy equilibrium: an outcome of a game in which everyone plays their dominant
strategy, nobody wants to deviate from this, because their individual outcome will decrease.
Nash equilibrium: a set of strategies that each player’s strategy is the best response to the strategies
chosen by everyone else, no player has an incentive to deviate unilaterally. There can be multiple
Nash equilibriums in 1 game.
Maximin strategy: minimize the loss instead of maximize the payoff (works especially when some of
the individual payoffs are negative numbers). You look at what happens if you choose A; other player
will choose A or B, highest possible loss is… comparing to highest possible loss when you choose B.
Iterated Elimination of Strictly Dominated Strategies
In case of more than 2 strategies. Compare first strategy to the second, third and fourth (in steps). If
one strategy strictly dominates another, you eliminate the non-dominant strategy. You can keep doing
this until you are left with 2 strategy (for both parties) and will find a Nash equilibrium.
You can also choose to not eliminate strategies in steps, but instead use the best-response-method.
Adapt from slides tutorial; description prisoners dilemma
The Prisoners Dilemma is a game where if two individuals cooperate, they can achieve the optimal
outcome, but because they act in their self-interest they do not; a non/socially desirable outcome.
Social interaction: a situation involving more than one person/party, where one’s actions affect both
their own and other people’s outcomes.
Strategic interaction: a social interaction where people are aware of the ways that their actions affect
others.
Parts of a game (model of strategic interaction);
- Strategy; actions that people can take when engaging in a social interaction
- Players; who are involved
- Feasible strategies; actions each player can take
- Payoffs; outcomes for every possible combination of actions
- Information; what each player knows when choosing their action
Best response: strategy that yields the highest payoff, given the other player’s strategy (look at when
the other player chooses A, do you choose A or B).
Dominant strategy: a best response to all possible strategies of the other player. Sometimes it
doesn’t exist. (a combination of the best responses when the other player chooses A, or chooses B).
But if there is a dominant strategy, you will stick to this and won’t change your choice.
Dominant strategy equilibrium: an outcome of a game in which everyone plays their dominant
strategy, nobody wants to deviate from this, because their individual outcome will decrease.
Nash equilibrium: a set of strategies that each player’s strategy is the best response to the strategies
chosen by everyone else, no player has an incentive to deviate unilaterally. There can be multiple
Nash equilibriums in 1 game.
Maximin strategy: minimize the loss instead of maximize the payoff (works especially when some of
the individual payoffs are negative numbers). You look at what happens if you choose A; other player
will choose A or B, highest possible loss is… comparing to highest possible loss when you choose B.
Iterated Elimination of Strictly Dominated Strategies
In case of more than 2 strategies. Compare first strategy to the second, third and fourth (in steps). If
one strategy strictly dominates another, you eliminate the non-dominant strategy. You can keep doing
this until you are left with 2 strategy (for both parties) and will find a Nash equilibrium.
You can also choose to not eliminate strategies in steps, but instead use the best-response-method.
Adapt from slides tutorial; description prisoners dilemma
The Prisoners Dilemma is a game where if two individuals cooperate, they can achieve the optimal
outcome, but because they act in their self-interest they do not; a non/socially desirable outcome.
