中国经济研究管理学及财务知识分析iryz.pptx

Game Theory(Microeconomic Theory(IV)Instructor:Yongqin Wang Email:yongqin_School of Economics,Fudan UniversityDecember,2004Main Reference:Robert Gibbons,1992:Game Theory for Applied Economists,Princeton University Press Fudenberg and Tirole,1991:Game Theory,MIT Press1.Static Game of Complete Informationn1.3 Further Discussion on Nash Equilibrium(NE)n1.3.1 NE versus Iterated Elimination of Strict Dominance Strategies Proposition A In the -player normal form game if iterated elimination of strictly dominated strategies eliminates all but the strategies ,then these strategies are the unique NE of the game.A Formal Definition of NEnIn the n-player normal form the strategies are a NE,if for each player i,is(at least tied for)player is best response to the strategies specified for the n-1 other players,Contd Proposition B In the -player normal form game if the strategies are a NE,then they survive iterated elimination of strictly dominated strategies.1.3.2 Existence of NETheorem(Nash,1950):In the -player normal form game if is finite and is finite for every ,then there exist at least one NE,possibly involving mixed strategies.See Fudenberg and Tirole(1991)for a rigorous proof.1.4 Applications 1.4.1 Cournot ModelTwo firms A and B quantity compete.Inverse demand function They have the same constant marginal cost,and there is no fixed cost.Contd Firm As problem:Contd By symmetry,firm Bs problem.Figure Illustration:Response Function,Tatonnement Process Exercise:what will happens if there are n identical Cournot competing firms?(Convergence to Competitive Equilibrium)1.4.2 The problem of Commons David Hume(1739):if people respond only to private incentives,public goods will be underprovided and public resources over-utilized.Hardin(1968):The Tragedy of CommonsContdThere are farmers in a village.They all graze their goat on the village green.Denote the number of goats the farmer owns by ,and the total number of goats in the village by Buying and caring each goat cost and value to a farmer of grazing each goat is .ContdA maximum number of goats:,for but forAlso The villagers problem is simultaneously choosing how many goats to own(to choose ).ContdHis payoff is (1)In NE ,for each ,must maximize (1),given that other farmers choose ContdFirst order condition(FOC):(2)(where )Summing up all farmers FOC and then dividing by yields (3)ContdIn contrast,the social optimum should resolveFOC:(4)Comparing(3)and(4),we can see that Implications for social and economic systems(Coase Theorem)2.Dynamic Games of Complete Informationn2.1 Dynamic Games of Complete and Perfect Informationn2.1.A Theory:Backward Induction Example:The Trust Game General features:(1)Player 1 chooses an action from the feasible set .(2)Player 2 observes and then chooses an action from the feasible set .(3)Payoffs are and .ContdBackward Induction:Then“People think backwards”2.1.B An example:Stackelberg Model of DuopolyTwo firms quantity compete sequentially.Timing:(1)Firm 1 chooses a quantity ;(2)Firm 2 observes and then chooses a quantity ；(3)The payoff to firm is given by the profit function is the inverse demand function,and is the constant marginal cost of production(fixed cost being zero).Contd We solve this game with backward induction(provided that ).ContdNow,firm 1s problemso,.ContdCompare with the Cournot model.Having more information may be a bad thingExercise:Extend the analysis to firm case.2.2 Two stage games of complete but imperfect information2.2.A Theory:Sub-Game PerfectionnHere the information set is not a singleton.nConsider following games (1)Players 1 and 2 simultaneously choose actions and from feasible sets and ,respectively.(2)Players 3 and 4 observe the outcome of the first stage(,)and then simultaneously choose actions and from feasible sets and ,respectively.(3)Payoffs are ,An approach similar to Backward Induction1 and 2 anticipate the second behavior of 3 and 4 will be given by then the first stage interaction between 1 and 2 amounts to the following simultaneous-move game:(1)Players 1 and 2 simultaneously choose actions and from feasible sets and respectively.(2)Payoffs are Sub-game perfect Nash Equilibrium is 2.2B An Example:Banks RunsnTwo depositors:each deposits D in a bank,which invest these deposits in a long-term project.nEarly liquidation before the project matures,2r can be recovered,where DrD/2.If the bank allows the investment to reach maturity,the project will pay out a total of 2R,where RD.nAssume there is no discounting.nInsert Matrixes nInterpretation of The model,good versus bad equilibrium.ContdnDate 1nDate 2r,rD,2r-D2r-D,DNext stageR,R2R-D,DD,2R-DR,RContdnIn EquilibriumnInterpretation of the Model and the Role of law and other institutionsr,rD,2r-D2r-D,DR,R2.3 Repeated Gamen2.3A Theory:Two-Stage Repeated GameRepeated Prisoners Dilemma Stage Game1,15,00,54,42,26,11,65,5ContdnDefinition Given a stage game G,let the finitely repeated game in which G is played T times,with the outcomes of all preceding plays observed before the next play begins.The payoff for G(T)are simply the sum of the payoffs from the stage games.nProposition If the stage game G has a unique NE,then for any finite T,the repeated game G(T)has a unique sub-game perfect outcome:the Nash equilibrium of G is played in every stage.(The paradox of backward induction)Some Ways out of the ParadoxnBounded Rationality(Trembles may matter)nMultiple Nash Equilibrium(An Two-Period Example)nUncertainty about other playersnUncertainty about the futures2.3B Theory:Infinitely Repeated GamesnDefinition 1 Given the discount factor ,the present value of the infinitely repeated sequence of payoffs isnDefinition 2(Selten,1965)A Nash Equilibrium is subgame perfect if the players strategies constitute a Nash equilibrium in every subgame.ContdnDefinition3:Given the discounted factor ,the average payoff of the infinite sequence of payoffs isFolk Theorem(Friedman,1971):See Gibbons(p97).Discuss Reputation Model 2.4 Dynamic Games with Complete but Imperfect InformationnInformation set is not a singleton.nJustification for Sub-Game Perfect Argument.nCommitment,Reputation,Sunk Cost and Cheap talk.