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Lec 16 - Backward induction: reputation and duels

Game Theory (ECON 159) 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. 00:00 - Chapter 1. Establishing a Reputation: Selten's Chain Store Paradox 20:56 - Chapter 2. Establishing a Reputation: Discussion 25:18 - Chapter 3. Dueling: Game Setup 34:04 - Chapter 4. Dueling: Game Analysis 45:42 - Chapter 5. Dueling: Finding a Solution 01:11:24 - Chapter 6. Dueling: Generalization Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses This course was recorded in Fall 2007.

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Tags: Backward Induction credible threats duel market entry Nash equilibrium reputation sub-game perfect

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