Introduction: Game Theory

Models of strategic interactions:

Outcomes depend on more than one players decision

The decisions for one player cannot be separated from those of others!

Models miss (important?) aspects of reality

That is why they are models

Wide set of applications

War: Why do some countries arm heavily while others do not? Tragedy of the commons: Why do we need international agreements on fishing and how should they be structured? Markets: What will happen if two companies are allowed to merge?

Wide Set of Applications

E-commerce: How should an on-line auction be structured to maximize revenue? How should sellers be policed? Legal: How should random audits of taxes be conducted? Sports: Should a soccer player adjust the fraction of time that s/he kicks penalty kicks to a goalies right or left based on the goalie?

Game Theoretic Models

Provide insights when interactions affect incentives Applications in many fields Methodology/tool box
tools will vary with the applications!

Questions About Models

Players: who makes the decisions? Strategies: what are the actions available? Timing: who does what and when? Information: what do players know when choosing? Payoffs: what happens as a function of the actions? and, what motivates players? ``Solution : how do we predict what will happen?

Course Outline
Normal Forms
Extensive Forms Repeated Games Incomplete Information: Bayesian Games

Normal Form
An example of a normal form game The formal model
The main ingredients: Players, Strategies, Payoffs Normal Form games
Dominance Equilibrium

Predator Prey Games

Lets examine an analysis based on a paper by Chen Shi and Sheng Bao 2008 ``A Game Theory Based Predation Behavior Model (Center for Game Theory in Economics Archive, 2010 Conference)
http://www.gtcenter.org/Archive/2010/Conf/Chen956.pdf

Strategies: Active or Passive

Predators - active: dragonfly, passive: spider Prey active: fly, passive: mealybugs

``Payoffs
Predator: expected calories captured less expected calories expended
Active raises calories expended and captured

Prey: penalty for expected death rate less expected calories expended
Active raises calories expended and lowers chances of death

But the expected capture and expended calorie rates are interactive

Predator/Prey

Pred\Prey Active Passive

Active 1.7, -.8 1.6, -.7

Passive 3,-1 0,0

Large Mammal estimates

Predator/Prey

Pred\Prey Active Passive

Active 1.7, -.8 1.6, -.7

Passive 3,-1 0,0

Large Mammal estimates

Predator/Prey

Pred\Prey Active Passive

Active 1.7, -.8 1.6, -.7

Passive 3,-1 0,0

Large Mammal estimates

Predator/Prey

Pred\Prey Active Passive

Active 1.7, -.8 1.6, -.7

Passive 3,-1 0,0

Large Mammal estimates

Are most large mammals active?

predators: lions, tigers, leopards, wolves, coyotes, dogs, cats. prey: deer, antelope, zebras, horses, mice, But not all Simplified game - could enrich strategy set and payoff structure

Predator/Prey

Pred\Prey Active Passive

Active 2, -7 3, -6

Passive 6, -8 -1,0

Small predator prey insects

Predator/Prey

Pred\Prey Active Passive

Active 2, -7 3, -6

Passive 6, -8 -1,0

Small predator prey insects

Predator/Prey

Pred\Prey Active Passive

Active 2, -7 3, -6

Passive 6, -8 -1,0

Small predator prey insects

Predator/Prey

Pred\Prey Active Passive

Active 2, -7 3, -6

Passive 6, -8 -1,0

Small predator prey insects

Predator/Prey

Pred\Prey Active Passive

Active 2, -7 3, -6

Passive 6, -8 -1,0

Predator/Prey

Pred\Prey Active Passive

Active 2, -7 3, -6

Passive 6, -8 -1,0

No stable pair of strategies: prey wants to match, predator wants to mismatch

Predator/Prey

Pred\Prey Active Passive

Active 2, -7 3, -6

Passive 6, -8 -1,0

No stable pair of strategies: prey wants to match, predator wants to mismatch Randomization: mixed strategies