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Economics 202: Intermediate Microeconomic Theory

Economics 202: Intermediate Microeconomic Theory. Review #2 … coverage. Game Theory. “Vote by Alternating Veto” Player 1 prefers X to Y to X, Player 2 prefers Z to Y to X. Find Nash equilibria and subgame perfect Nash equilbria. Ultimatum Game. Rules

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Economics 202: Intermediate Microeconomic Theory

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  1. Economics 202: Intermediate Microeconomic Theory • Review #2 … coverage

  2. Game Theory • “Vote by Alternating Veto” • Player 1 prefers X to Y to X, Player 2 prefers Z to Y to X • Find Nash equilibria and subgame perfect Nash equilbria

  3. Ultimatum Game • Rules • Two players are allotted a sum of money (the “stake”) • Assume $20 stake • The “proposer” offers a % of the total to the “responder” • can only offer in even $1 amounts • Responder may either accept or reject • If accepted, responder gets amount offered • If rejected, both players receive $0

  4. Summary of Ultimatum Game Results LAMachiguengaYogyakartaTucsonPittsburghTokyo # Pairs 15 21 37 24 27 29 Stake size $160 $160 $80 – 120 $10 $10 $10 Average .48 .26 .44 .44 .45 .45 Mode .50 .15 .50 .50 .50 .50 Rejection 0 .048 .081 .083 .22 .24 Rej < 20% 0/0 1/10 0/0 na 0/1 2/4 • Behavior deviates from that predicted by “game theory” • UG results are robust to stake size, degree of anonymity • Where do people get their rules, expectations, and notion of fairness from? • Why do they vary across societies? How might they affect economic behavior? • Henrich, Joeseph (2000), “Does Culture Matter in Economic Behavior? Ultimatum Game Bargaining Among the Machiguenga of the Peruvian Amazon,” American Economic Review, vol. 90, no. 4, September, pp. 973 – 979.

  5. The Prisoner’s Dilemma Farmer B • “Tragedy of the Common” • How many yaks to graze on the village common? • How many Chilean sea bass to catch and bring to market? • What values would make this a Prisoner’s Dilemma? • Play once • Play twice • Play infinitely 5 bass 4 bass 1 ? 5 bass 1 ? Farmer A 2 ? 4 bass ? 2

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