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Comparing & contrasting decision problems and normal games

Economics Asked by Wivaviw on April 19, 2021

I am trying to compare and contrast between decision problems and normal games. Are there any key concepts I should know? Any help would be greatly appreciated.

One Answer

Decision under uncertainty is sometimes called a "game against chance", and can thus be modeled as a two-player normal form game: the decision-maker vs Nature/Chance. The possible states would form a set of pure strategies for Nature, and Nature commits to a publicly known mixed strategy that randomizes over those pure strategies (assume Nature is indifferent between all outcomes so that the mixed strategy is rational). The decision-maker's best response to this known mixed strategy is equivalent to the choice that maximizes his expected utility in the decision problem. In this sense, decision problems are really just a special case of a game.

The above suggests that your statement

A decision problem deals with expected utility, whereas normal form games do not.

is incorrect, since normal form games do deal with expected utility, especially when proper mixed strategies are involved.

Answered by Herr K. on April 19, 2021

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