Lesson 1
Matchmaking Game - Introduction
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We analyze three games using our new solution concept, subgame perfect equilibrium (SPE). The first game involves players' trusting that others will not make mistakes. It has three Nash equilibria but only one is consistent with backward induction. We show the other two Nash equilibria are not subgame perfect. The second game involves a matchmaker sending a couple on a date. There are three Nash equilibria in the dating subgame. We construct three corresponding subgame perfect equilibria of the whole game by rolling back each of the equilibrium payoffs from the subgame. Finally, we analyze a game in which a firm has to decide whether to invest in a machine that will reduce its costs of production. Polak, Ben. ECON 159, Game Theory, Fall 2007. Yale OpenCourseWare: Economics, Accessed 03/10/14 http://oyc.yale.edu/economics/econ-159/lecture-19 License: Creative Commons BY-NC-SA


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