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Discover how game theorists model rational choices and strategic interaction, starting from foundational individual decision-making.
Lecture guide · Written by AI from the lecture. For the lecture’s own words, open the Transcript tab.
This foundational lecture introduces game theory and individual decision-making under uncertainty. Ian Ball demonstrates the mechanics of interactive reasoning through a Keynesian beauty contest experiment and establishes the formal economic frameworks for ordinal and cardinal utility, expected utility, and risk aversion.
This lecture assumes
- Utility Functiontaught in Preferences and Utility Functions at 15:35
Key Takeaways
- Game theory is interactive decision theory, studying how rational agents make choices when outcomes depend on others' actions.
- Ordinal utility representations only capture preference ordering, where numerical values hold no intrinsic meaning.
- Cardinal von Neumann-Morgenstern utility functions are required when evaluating decisions under uncertainty.
- Expected utility theory models decision-making by combining subjective beliefs with cardinal utilities over outcomes.
Concepts Explained14
Game Theory—The study of mathematical models of conflict and cooperation between intelligent rational decision-makers, or interactive decision theory.
Keynesian beauty contest—A game where participants guess a number that is a fraction of the average guess of all participants, illustrating interactive decision-making and higher-order expectations.
Rationality in Game Theory—Consistency in how agents act towards achieving some consistent objective.
Strategic Interdependence—A situation where what is best for one person depends upon what other people do.
Examples, Proofs & Derivations