Brief Summary
This Yale Game Theory Economics class explores strategic situations where outcomes depend on the actions of others. The course emphasizes the importance of understanding payoffs and putting yourself in others' shoes to predict their actions. The video uses a simple grade scheme game to illustrate key concepts like strictly dominant strategies, the Prisoner's Dilemma, and coordination problems. The class also discusses the role of collusion, communication, and enforcement in strategic settings.
- Don't play a strictly dominated strategy.
- Rational choices can lead to bad outcomes.
- Put yourself in others' shoes.
- You can't get what you want until you know what you want.
- Yale students are evil.
Chapter 1. What Is Strategy?
The professor introduces Game Theory as a method for studying strategic situations. He contrasts it with non-strategic situations like perfect competition and monopolies, where firms don't need to consider the actions of their competitors. He defines a strategic situation as one where outcomes depend on the actions of multiple players.
Chapter 2. Strategy: Where Does It Apply?
The professor discusses the wide applicability of Game Theory beyond economics, including politics, law, biology, and sports. He highlights its importance in legal settings and its use in understanding evolutionary processes.
Chapter 3. (Administrative Issues)
The professor addresses the videoing of the class as part of Yale's open education project. He explains that students will be on film and audio, and they need to sign a legal release form. He also outlines the grading scheme, which includes problem sets, a midterm, and a final exam.
Chapter 4. Elements of a Game: Strategies, Actions, Outcomes and Payoffs
The professor introduces a simple grade scheme game where students choose between two strategies, Alpha and Beta. He explains the different outcomes and payoffs associated with each strategy combination. He then creates a payoff matrix to visually represent the game's structure and outcomes.
Chapter 5. Strictly Dominant versus Strictly Dominated Strategies
The professor analyzes the grade scheme game under the assumption that students only care about their own grades. He introduces the concept of a strictly dominant strategy, where one strategy yields a higher payoff regardless of the other player's choice. He argues that students should always choose a strictly dominant strategy, as it guarantees a better outcome.
Chapter 6. Contracts and Collusion
The professor discusses the potential for collusion in strategic settings, where players might agree to cooperate to achieve a better outcome. He explains that contracts can be used to enforce collusion, but they are often illegal. He also explores the role of trust and reputation in maintaining collusion.
Chapter 7. The Failure of Collusion and Inefficient Outcomes: Prisoner's Dilemma
The professor introduces the Prisoner's Dilemma, a classic game theory example where individual rationality leads to a collectively suboptimal outcome. He uses the example of two prisoners who are better off confessing, even though they would both be better off if they remained silent. He then applies this concept to real-world situations like roommate conflicts and price competition between firms.
Chapter 8. Coordination Problems
The professor introduces the concept of coordination problems, where players have multiple possible strategies, but they need to coordinate their choices to achieve a desired outcome. He uses the grade scheme game to illustrate this, showing that changing the payoffs can lead to a situation where neither strategy dominates the other.
Chapter 9. Lesson Recap
The professor summarizes the key lessons from the class, emphasizing the importance of understanding payoffs, putting yourself in others' shoes, and recognizing that rational choices can lead to inefficient outcomes. He concludes by reminding students that they will be playing games throughout the semester and that they should be aware of the strategic nature of their interactions.
