 
Lenka Kopečková
 Adam Smith – „Invisible hand“
 „Laissez-faire“
 Neoclassical economics
No state interventions…???
 The study of mathematical models of conflict and
cooperation between rational decision-makers
 Rational decision-maker
 has all necessary information
 has unlimited computational skills
 has no emotions
 has only purpose: to maximize his own utility
 Bob and Dale have committed a crime. Police arrested them
and put them into a separate cells so that they cannot
communicate with each other. Both of them are offered a
same deal by the police. The deal is:
 If one confess the crime and his partner denies taking part in the
crime, the one goes free (due to mitigating circumstances ) and his
partner goes to a prison for 20 years.
 If both confess the crime they will serve 5 years each.
 If both deny taking part in the crime, the police can only arrest
them for some minor crimes and they both go to prison for 1 year.
Bob
Dale
Not confess Confess
Not confess 1,1 20,0
Confess 0,20 10,10
 Dominant strategy: if, regardless of what other players
do, one strategy earns player a larger utility than any
other.
 Pareto improvement: a change to a different allocation
that makes at least one individual better off without
making any other individual worse off.
 "Pareto efficient" or "Pareto optimal" if no further
Pareto improvements can be made.
John and Anna like going out to dance. They definitely
prefer going dancing over sitting at home. As it sometimes
happenes, John likes Anna, but Anna does not like him at
all. That is also the reason why they do not arrange the
plans in mutual cooperation. John enjoys dancing the best
if Anna is there, however he still has fun even if Anna is not
coming. Anna, on the other hand, enjoys dancing only
without John and she rather prefers staying at home over
dancing with John.
John
Anna
Stay at home Going to dance
Stay at home 2,0 2,1
Going to dance 3,0 1,2
Peter and Jane are dating. Before they went to work, they
disccused plans for the evening. Jane wanted to see a
balleet but Peter wanted to see a fotball game. They
decided to make the final deal during the day, but Jane
forgot her mobile phone at home, so they couldnt
comunicate with each other. The most important for both of
them is to spend the evening together with the other one,
even though it wouldn’t be at the event that s/he wanted. If
one goes to fotball and the other to ballet, they will not have
fun and will rather go home.
Jane
Peter
Fotball Ballet
Fotball 2,1 0,0
Ballet 0,0 1,2
 Nash Equilibrium: a set of strategies, one for
each player, such that no player has an
incentive to unilaterally change his
action,because unilateral change would
decrease his utility
 How is it with motivation to (not) cooperate in
these situations?
 one shot game
 finitely repeated game
 infintely repeated game
In the population of birds exist only two species:
Hawks and Turtle doves. Hawks are very agressive
and they always fight to get all the food, even though
fighting is very exhausting. Turtle doves prefer sharing
and they avoid the fight even if it means, that they
would have to leave the spot and they don’t get
anything.
One fight consumes 10 calories and one portion of the
food contains 12 calories.
Which of the species will survive?
 If Turtle dove meets other Turtle dove, they share the
food
 If Turtle dove meets Hawk, Turtle dove escapes and
hawk gets everything.
 If Hawk meets Hawk, they fight and winner takes it all
Bird 1
Bird 2
Hawk Turtle-dove
Hawk -4,-4 12,0
Turtle-dove 0,12 6,6
If there are only 2 birds: