Backward Induction
sort by: Relevancy | Title | Rating try advanced search for more options
-
This course is an introduction to game theory and strategic thinking. Ideas such as dominance, backward induction, Nash equilibrium, evolutionary stability, commitment, credibility, asymmetric information, adverse selection, and signaling are discussed and applied to games played in class and to examples drawn from economics, politics, the movies, and elsewhere.
-
The class's examination of Nozick's minimal state has raised a number of important questions, most of which are rooted in his troublesome model of compensation. Nozick would respond with his threefold account of justice: (1) justice in acquisition, (2) justice in transfer, and (3) rectification of past injustices. Nozick brilliantly demonstrates that "liberty upsets patterns"--even though we can originally start off with any just...more
-
-
-
-
-
-
-
-
We analyze three games using our new solution concept, subgame perfect equilibrium (SPE). The first game involves players' trusting that others will not make mistakes. It has three Nash equilibria but only one is consistent with backward induction. We show the other two Nash equilibria are not subgame perfect: each fails to induce Nash in a subgame. The second game involves a matchmaker sending a couple on a date. There are three Nash...more
-
We consider games that have both simultaneous and sequential components, combining ideas from before and after the midterm. We represent what a player does not know within a game using an information set: a collection of nodes among which the player cannot distinguish. This lets us define games of imperfect information; and also lets us formally define subgames. We then extend our definition of a strategy to imperfect information games,...more
-
This lecture is about optimal exercise strategies for callable bonds, which are bonds bundled with an option that allows the borrower to pay back the loan early, if she chooses. Using backward induction, we calculate the borrower's optimal strategy and the value of the option. As with the simple examples in the previous lecture, the option value turns out to be very large. The most important callable bond is the fixed rate amortizing...more
