10. Game theory terminologySelect the term that best describes each definition listed in the following table.DefinitionNash EquilibriumDominant StrategyCollusionTit-for-tat StrategyPayoff Matrix/TablePrisoners' Dilemma GameA set of strategies (one for each player) in which each player's strategy is the best option for that player, given the chosen strategy of the player's opponents A strategy in which a player cooperates until the other player defects and then defects until the other player cooperates again A case in which individually rational behaviour leads to a jointly inefficient outcome A player's best choice, if it exists, regardless of his or her opponent's strategy

The game theory is a branch of economics which studies how rational players make decisions. It is a…

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Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter8: Game Theory

Section: Chapter Questions

Problem 8.3P

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10. Game theory terminology

Select the term that best describes each definition listed in the following table.

Definition	Nash Equilibrium	Dominant Strategy	Collusion	Tit-for-tat Strategy	Payoff Matrix/Table	Prisoners' Dilemma Game
A set of strategies (one for each player) in which each player's strategy is the best option for that player, given the chosen strategy of the player's opponents
A strategy in which a player cooperates until the other player defects and then defects until the other player cooperates again
A case in which individually rational behaviour leads to a jointly inefficient outcome
A player's best choice, if it exists, regardless of his or her opponent's strategy

Definition Definition Economic decision-making framework that analyzes how different players optimize their outcomes with given pay-offs corresponding to their available strategies. The assumptions of game theory are: The number of players or competitors are finite/limited; All participants are rational The rules of the game are known to every player; and Each participant has a finite set of actions. A common way in which game theory is presented as an ( m x n ) matrix in which m represents the strategies of row player and n represents the strategies of column player. There are several limitations of game theory: Many businesses have a large number of competitors, and selecting an optimal strategy in these circumstances is difficult; Real-life business operating environments are full of uncertainty and difficult to model as a game theory; and The assumption of rationality and utility maximization isn't always an accurate portrayal of human nature.

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