Intro to Game Theory and the Dominant Strategy Equilibrium
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http://economicsdetective.com/ Game theory is the study of human behaviour in strategic settings. It is used to solve some of the harder problems in economics. So what is a game? To have a game, you need at least two players, sometimes called agents, or, if you want to be really crazy, people. And you need payoffs for the players, you need to define the outcomes they can potentially get depending on how the game unfolds. And finally, you need rules for the game. Now, it's not always obvious how people will behave, even with players, payoffs, and rules clearly defined. That's why game theorists have a number of solution concepts for games, including the dominant strategy equilibrium, the Nash equilibrium, the subgame perfect Nash equilibrium, the Bayesian equilibrium, and the weak perfect Bayesian equilibrium. The most basic solution concept is the dominant strategy equilibrium. In a game, each player can have any number of possible strategies. One strategy strictly dominates another strategy if the player is always better off under that strategy no matter what other players do. If one strategy strictly dominates every other possible strategy a player could take, that strategy is a strictly dominant strategy. We have a dominant strategy equilibrium when all players play a strictly dominant strategy. Now let's look at the most famous game in game theory, the Prisoner's Dilemma. There are two prisoners, prisoner 1 and prisoner 2, and they each have a choice. They can testify against the other, or they can keep quiet. If they both keep quiet, they both get off with a light sentence, which I'll represent with a payoff of 2. Prisoner 1's payoff is on the left, prisoner 2's is on the right. If they both testify, they both get a moderate sentence. I'll represent the moderate sentence by a payoff of 0. Right about now, keeping quiet is looking like the best option, but there's more to this game. If one testifies and the other keeps quiet, the one who testified will get off scot free, and the one who kept quiet will get an extremely harsh sentence; they'll throw the book at him. Think about this game for a moment. Keeping quiet looks like a pretty good option if both prisoners could promise not to testify. But these prisoners only care about their own self-interest. So, both prisoners may tell the other they pinky swear not to testify, but they won't keep that promise. If prisoner 2 keeps quiet, prisoner 1 is better off testifying. If prisoner 2 testifies, prisoner 1 is better off testifying. Testifying is a dominant strategy for both players, so both testifying is the dominant strategy equilibrium. The prisoner's dilemma comes up in all sorts of situations. For instance, instead of prisoners our players could be, say, oil companies. If both set a high price they can sell for a high price, but each one has an incentive to undercut, in which case he will capture the entire market. The equilibrium outcome is for each company to charge a low price. The prisoner's dilemma isn't the only game with a dominant strategy equilibrium. Here's a more complicated one. Can you tell which strategy is dominant? It's A for player 1, and E for player 2. So the dominant strategy equilibrium is A, E.
Comments
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@3:46 would be insightful to point out that despite player 2 "beating" player 1, both players benefit most (ie. just defeating opponent isn't always the optimal goal, just as losing is not always a bad thing). In other words, producing the highest outcome for both players is optimal. And the bongos sound like annoying kitchen drawers shutting.
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Why does it look familiar to Split or steal
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still dont get it
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prisoner game, you made it sequential, if for their best interest without talking to each other, the nash equilibrium woult be (2,2)
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u r awesome - What is God's game theory? He created Game Theory you are explaining :) just sayin'
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i have a real life example of this. I was contemplating taking someone to HR at work, and I knew that the other person had been talking about taking me to HR. I was too busy and scared so I didn't take her to HR, and she took me to HR.
I got absolutely screwed, even though I did not do anything remotely wrong as she had done (sexual harassment, telling me I need to get laid, bullying, etc.).
So I should have, according to game theory dominant strategy, taken her to HR. That way it would have cancelled out.
I got the book thrown at me. Damn it...wish I saw this video last year :( -
didnt understand a shit
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Jesse Eisenberg is that you?
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each citizen in the former British Empire (the US, Canada, Australia, the UK itself) and the wealthiest countries in Western Europe on average would have to give away 100 000 US Dollars to pay out the national debt. in case of Russia, it's 46 dollars. a much bigger territory, a much harder climate (hence far greater expenses) etc. meaning that the above-mentioned countries loan a lot more than they earn. and by all human standards, that is immoral and entirely non-altruistic. it's selfish and, since it does suggest some kind of exceptionalism fetish, hugely racist. how does this "game theory" apply here? the most selfish and predatory wins, darwinism all the way, altruism here is non-existent.
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and that's just a theory.... A GAME THEORY
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This is an ok basic example and understanding of This theory, but this theory is actually flawed, human emotions are too random to calculate and to say this is or that is how people would act in certain situations. You cant say this is or that is a dominant strategy equilibrium because it depends on the game or situation you are in because the rules will never be set and unchangeable they will be forever changing because Dominant , winning or losing is all subjective, even if people try to force you inside the rules they have created the human mind can break those rules by simply not excepting it. Why Because the terms Dominant, winning or losing is Subjective and subject to Variable change as soon as a person rejects the rules or has a difference of opinion your rules of dominant strategy equilibrium, the Nash equilibrium, the subgame perfect Nash equilibrium, the Bayesian equilibrium, and the weak perfect Bayesian equilibrium are Null in void. Simply because your ideas and concepts of Game theory equilibrium is SUBJECTIVE. In the end NOBODY is right or wrong because its all how a person looks at the situation. Just because someone says you won or lost doesn't make it true even if the game says u lost, us as humans always have the power to reject it and according to universal law they would be right. So just like all other theories and philosophy it will just spin u in a circle, nobody wins nobody loses. This theory works if u set what you determine as Dominant or winning and calculate what it will take to accomplish that, But like all theories it runs straight into a wall. This is not just game theory this is human psychology conditioning theory, But when they say Game theory you Fall Into the trap of playing by there rules, this is human psychology conditioning theory. They call it game theory because people fall into there game they have created, this theory has nothing to really do with games its about being so far ahead of your opponent psychologically that they have no clue they are being played with like a puppet. This is human psychology conditioning theory.
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A mixed nash equilibrium is like watching cars trying to maneuver past each other eventually its going to turn into a game but as you would expect people would be trying to find ways to get past but at the most complex level of the game people will need to make maneuvers that wont risk getting hit but getting by.
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I dont get the oil company example...Why not both charge high price?
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"Game theory is the study of human behaviour in strategic settings." It studies AI to...
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This video helped me understand game theory, thanks so much! It's not that it's difficult, it's just hard to apply game theory to my tests. I made my own "stoner edition" tutorial (lol) that goes through examples that will probably be on econ tests. Check out the video on my channel if u need further help. Thanks for the upload "detective" :)
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:)
No, thank YOU. -
But hey, that's just a theory, a GAME THEORY! Thx for watching!
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are you reaching this for HSC concept because I find the US one is different to the way they teach me in Aussie
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But this is just a theory, a game theory. Thanks for watching.
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Is solitaire not a game?
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