Define the following terms and explain their importance to the study of economics. a. maximin criterion b. Nash equilibrium c. Dominant Strategy d. Zero-sum game e. Credible threat

Question

What will be an ideal response?

Answer 1

a. Maximin criterion means selecting the strategy that yields the maximum payoff, on the assumption that an opponent does as much damage as he/she can. This method is employed in a game theory analysis of oligopoly.b. A Nash equilibrium is one in which each player adopts the move that yields the highest possible payoff to himself, given the move selected by the other player. This is an analytically useful strategy in game theory used in seeking to understand the behavior of oligopolists.c. A Dominant Strategy is a strategy for one of the competitors in a game that will yield a higher payoff than any other strategies that are possible for her, no matter what choice of strategy is made by her competitors.d. A Zero-Sum game is a game in which the exact amount that one competitor gains must be lost by other competitors. It was once thought that international trade was this type of game.e. A Credible threat is a threat that one’s opponent has reason to think will be carried out. Credible threats are essential in the study of repeated games.