Summary
Highlights
Professor Polak introduces Game Theory as the study of strategic situations, distinguishing it from non-strategic scenarios like perfect competition and monopolies. He highlights the importance of considering others' actions in strategic settings, using the motor industry as an example. The course applies to economics, politics, law, biology, and sports.
Admin details include the video recording for Yale's open education project, requiring a legal release form from students to participate. The grading scheme is 30% problem sets, 30% midterm, and 40% final. Textbooks are recommended as backup, not strictly followed. Sections sign-ups are on the website.
The class participates in a grade bidding game (Alpha or Beta choice) demonstrating strategic interaction. The professor converts the results into a payoff matrix to analyze choices and introduces the concept of 'evil gits', players who prioritize their own grades. The lesson: Game Theory cannot define what your payoffs should be. Game theory can help you get there.
The lecture defines strictly dominated strategies and emphasizes, 'Do not play a strictly dominated strategy.' A discussion ensues, revealing that choosing Alpha dominates Beta, regardless of the other player's choice. Rational choice can lead to undesirable outcomes, exemplified by the Prisoner's Dilemma. The lecture then explores scenarios beyond pure self-interest.
Examples of the Prisoner's Dilemma include roommate dynamics (tidiness) and firms competing on price. Remedies explored are contracts in theory, but they are illegal in the case of firms trying to collude. Communication is not sufficient because it doesn't have teeth, like a contract.
The lecture introduces 'indignant angels' who factor in guilt or indignation into their payoffs. A new payoff matrix is presented, again showing how if players consider payoffs in addition to grades, the results change. This section also defines coordination problems.
The lecture considers scenarios where an evil git plays against an indignant angel, and vice versa. This illustrates the importance of putting yourself in others' shoes to anticipate their actions. In these scenarios dominant strategies can change.
Experimental data shows not all of the subjects chose Alpha, even it's the right move according to Game theory. The students may just be 'stupid', and The professor announces the final lesson: Yale students are evil. The introduction of Game 2: 'Pick a Number', a real-money game, engages the class, demonstrating the class' average. The money from the class game is given to Jude, the camera-man for the class, who will bring it to the winner next class.