LECTURE 2.

1
SIMULTANEOUS MOVE GAMES (COOPERATION, COORDINATION)
Book DN (2008): chapters 3/4/5/9
 cannot solve by
dominant strategy

SOLVE BY ELIMINATING
DOMINATED STRATEGIES

 B.B Lean 42/38:

dominated by
41/39=take out
 Rainbows 42/38:
dominated by
41/39=take out
 Dominant strategy: set
price to $40 = Nash equilibrium

SOLVE BY FINDING BEST RESPONSES

RULE OF STRATEGY 4:

Having exhausted the simple

avenues of looking for dominant
strategies or ruling out dominated
strategies, next search all the cells
in the game table for a pair of
mutual best responses in the
same cell, which is a Nash
Equilibrium of the game
 LECTURE 2.2
TEAMWORK, COMMUNICATION, PUNISHMENT, SOCIAL NORM

Dominant Strategy: A player is said to have a dominant strategy if that same strategy is better for
him than all of his other available strategies no matter what strategy or strategy combination the
other player or players choose. In a prisoner’s dilemma both players have a dominant strategy, but
when both players use their dominant strategies, both do worse than they would have if someone
they could have jointly.

How to achieve cooperation?

Solution by Kantian categorical imperative?

“Take only such actions as you would like to see become universal law.” Immanuel Kant
This is not the reality. The actions of one players have no effect whatsoever on the other player in
the game. Still people think that somehow their actions can influence the choice of others, even
when their actions are invisible.

Prerequisites for cooperation, according to Elinor Ostrom (Indiana University)

1. There must be clear rules that identify who is a member of the group of players in the game.
2. There must be clear rules defining permissible and forbidden actions.
3. A system of penalties for violation of the above rules must be clear and understood by all
parties.
4. A good system to detect cheating must be in place. The best method is to make detection
automatic in the course of the players’ normal routine

Summary Rules part 1

1. Look forward and reason backward.
2. If you have a dominant strategy, use it.
3. Eliminate dominated strategies from consideration.
4. Look for an equilibrium, a pair of strategies in which each player’s action is the best
response to the others.

 Prisoner’s Dilemma can be extended to multiple-person game

o Public Good game = contribution
o Common Resource Pool game = extraction
o Players have an incentive to free-ride on the other player
 Same feature: social dilemma
o Social Optimum = full contribution, no extraction
o Individual optimum = no contribution, full extraction