In this infinite cosmos we have only one life each. A life in this infinite cosmos is just like a dust in the world. Born by chance and die in necessity. Feeble life and boundless world, two facts we face. Even if you spend your whole life solving them. You will get nothing. - 1998

Sunday, April 25, 2004

game theory

summary of some basic concepts of game theory after some reading:

denotes a measure of subjective psychological fulfillment

That is, a player can (i) assess outcomes; (ii) calculate paths to outcomes; and (iii) choose actions that yield their most-preferred outcomes, given the actions of the other players

all simultaneous-move games are games of imperfect information. Games of perfect information (as the name implies) denote cases where no moves are simultaneous (and where no player ever forgets what has gone before).

Matrix games are referred to as ‘normal-form’ or ‘strategic-form’ games, and games as trees are referred to as ‘extensive-form’ games. When order of play is irrelevant to a game's outcome, then you should study its strategic form, since it's the whole set you want to know about. Where order of play is relevant, the extensive form must be specified or your conclusions will be unreliable.

A set of strategies is a NE just in case no player could improve her payoff, given the strategies of all other players in the game, by changing her strategy. Notice how closely this idea is related to the idea of strict dominance: no strategy could be a NE strategy if it is strictly dominated. This implies that if a game has an outcome that is a unique NE, as in the case of joint confession in the PD, that must be its unique solution. This is one of the most important respects in which the PD is an ‘easy’ (and atypical) game.

Production-Possibility Frontier
Production efficiency occurs when production of one good cannot be increased without curtailing producton of another good. This is illustrated by PPF. When an economy is operating efficiently -on its PPF- it can produce more of one good only by producing less of another good. PPF illustrate many basic economic processes: how economic growth pushed out the frontier, how a nation chooses raltively less food and other necessities as it develops, how a country chooses between private goods and public goods, and how societies choose between consumption goods and capital goods that enhance future consumption. Societiesare sometimes inside their PPF frontier. When unemployment is high or when revolutionor inefficient government regulations hamper economic activity, the economy is inefficient and operates inside PPF.


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