Lecture 16 - Backward induction: reputation and duels

author: Benjamin Polak, Department of Economics, Yale University
recorded by: Yale University
published: Nov. 15, 2010,   recorded: September 2007,   views: 3591
released under terms of: Creative Commons Attribution No Derivatives (CC-BY-ND)
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Description

In the first half of the lecture, we consider the chain-store paradox. We discuss how to build the idea of reputation into game theory; in particular, in setting like this where a threat or promise would otherwise not be credible. The key idea is that players may not be completely certain about other players' payoffs or even their rationality. In the second half of the lecture, we stage a duel, a game of pre-emption. The key strategic question in such games is when; in this case, when to fire. We use two ideas from earlier lectures, dominance and backward induction, to analyze the game. Finally we discuss two biases found in Americans: overconfidence and over-valuing being pro-active.

Reading assignment:

Strategies and Games: Theory And Practice. (Dutta): Chapters 11-12

Strategy: An Introduction to Game Theory. (Watson): Chapter 21

Resources:

Problem Set 7 [PDF]
Discussion of Duel [PDF]
Blackboard Notes Lecture 16 [PDF]

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