strategic uncertainty and equilibrium concepts

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1、7StrategicUncertaintyandEquilibriumConceptsForthemostpart,theanalysistothispointhasdealtwitheventuncertainty.Individualsweremainlyuncertainaboutnatureschoiceofstateoftheworld.Inthefollowingchaptersthefocusshiftstostrategicuncertainty,wherethebestcourseofactionforindividualAdependsuponindividualB

2、schoice,andviceversa.Sothemainrisksthatapersonhastodealwithconcerntheactionsandreactionsofothers.Afirststepisthechoiceofanequilibriumconceptforsuchanenvironment,whichturnsouttobeasubtleandstillcontroversialissue.Asusual,ourdiscussionwillnotattempttoaddressformalissuesofexistenceoruniquenessofequi

3、librium.Ouraiminsteadistoprovideanintuitiveinterpretationofthekeyideas.7.1DominantStrategyWebeginwiththePrisonersDilemma,agamethatiseasytoanalyze.Thestorybehindthisgameisasfollows.Twoaccompliceshavebeenarrestedonsuspicionofcommittingamajorcrime.Theprosecutordoesnothavesufficientevidencetoconvictt

4、hemofthiscrime.Withoutaconfessionfromatleastoneofthetwoaccomplicestheprosecutorcanonlysendthemtoprisonforoneyearforthelesserchargeofillegalpossessionofweapons.Thetwoaccomplices(orprisoners)arelockedupindifferentcellsandcannotcommunicatewitheachother.Theprosecutorapproacheseachofthemseparatelyand

5、says,IfyouconfessandyourfrienddoesnotthenIwilldropallchargesagainstyou.Ontheotherhand,ifyourfriendconfessesandyoudonotthenyouwilldo10years.IfyoubothconfessthenIllseetoitthatyougetparoleafter5yearsinprison.Thinkhardaboutwhatyouwanttodoandletmeknowtomorrowmorning.Eachprisonerknowsthatifbothofthemr

6、emainsilentanddonotconfesstheneachwillbesentenced2707.1DominantStrategy271Table7.1.Prisoners’DilemmaPrisonerkDefectCooperatex2x212Defectx1−5,−50,−10Prisonerj1Cooperatex1−10,0−1,−12toonlyoneyearofprisononfirearmspossessioncharges.Whatdoyouthinktheprisonerswilldo?Assumethateachprisoneractspurelyinh

7、isownself-interestandseekstominimizehistimeinprison.LetuscallthetwochoicesthateachprisonerfacesDefect(ifheconfesses)andCooperate(ifhedoesnotconfess).1Theconsequence(i.e.,thenumberofyearsinprison)foreachprisonerdependsnotonly