Week 1: Introduction, Extensive Forms

• studies the strategic interaction of decision makers (players)

• Interaction is strategic if the outcomes that follow from the decisions of a player are also determined by the decisions of other players

1. The players

2. The actions and their timing for each player

3. The information of players when they choose actions

4. How the actions of the players lead to outcomes

5. The preferences of the players over the outcomes (utilities or payoffs)

• Nodes: “histories” of action

• Node a is the immediate predecessor of node b

Game tree:

• here: perfect information

Player 2 cannot distinguish between the node d and e, therefore we connect them by a dotted line - they belong to the same information set

• if an information set has k nodes an action is represented by k branches, one for each node: If a possible action is “L” then a branch “L” must follow from each node in the information set -> otherwise the player will be able to tell them apart

• Hence, the same number of branches must originate from any node in the same information set