Answer to Question #286651 in Microeconomics for 1121

Question

Consider the following strategic situation that has been enacted in a recent experiment: Participants are grouped into groups of n participants. Participants sit, each in front of their own computer, in the lab and decide about whether to volunteer or not. Each group was given two minutes to decide, with the experiment ending as soon as someone volunteered. If no one volunteered, each group member received a payment of $1. Anyone who volunteered received $1.75, while the other group members who have not volunteered each received $2. 

Translating this situation into a simultaneous move game, write the primitives of the model, the set of players, the set of actions for each player and the preferences of each participant on profiles of actions by all players.

Answer 1

Game theory gives a formal framework for reasoning about strategic interdependence situations. I start with preferences and utility theory while explaining game theory, and then define the normal form representation of a simultaneous-move game. I go over key solution concepts including Nash equilibrium and dominant-strategy equilibrium, as well as the potential games and congestion games classes. For example, game theory can be used to design and analyze reputation systems (will buyers provide negative feedback or be concerned about retaliatory negative feedback from the seller? ), internet security (will firms adopt new standards or argue that there will be no benefit unless others do? ), and meeting scheduling systems (will users game the outcomes by submitting false information about preferences and constraints?)