Precedents

Definition

Precedents are prior instances or examples that influence decision-making in similar situations. In the context of game theory, they can affect the expectations of players in a game, particularly when there are multiple equilibria, guiding their choices and strategies based on past outcomes and behaviors.

5 Must Know Facts For Your Next Test

1. Precedents help shape players' expectations about which equilibrium will be selected in games with multiple equilibria, influencing their strategy choices.
2. In coordination games, the presence of clear precedents can lead players to converge on a particular equilibrium, reducing uncertainty.
3. Precedents can create a path dependence where past actions dictate future choices, making it harder to switch between different equilibria.
4. The influence of precedents may vary depending on the context and players' perceptions of past outcomes, which can lead to different equilibrium selections.
5. Players often rely on precedents to reduce complexity in decision-making when faced with uncertain environments, thus simplifying strategic interactions.

Review Questions

• How do precedents influence players' decisions in games with multiple equilibria?
  • Precedents serve as guiding examples that help players form expectations about which equilibrium is likely to be selected. When players observe successful outcomes from previous interactions, they are more likely to replicate those strategies in similar situations. This reliance on past experiences allows players to navigate uncertainty and enhances the likelihood of converging on a specific equilibrium.
• Discuss the role of precedents in coordination games and how they affect equilibrium selection.
  • In coordination games, precedents play a crucial role by establishing common knowledge among players about successful strategies. When players are aware of previous successful outcomes, they are more inclined to coordinate their actions based on these shared experiences. This collective understanding helps reduce ambiguity and fosters cooperation, ultimately leading to a more predictable selection of equilibria.
• Evaluate the impact of precedents on path dependence within strategic interactions and its implications for future outcomes.
  • Precedents can lead to path dependence, where historical decisions significantly influence future choices. In situations where players consistently rely on past actions as a reference point, it becomes challenging to shift away from established equilibria. This rigidity can limit strategic flexibility and innovation, as players may feel compelled to follow historical trends rather than explore potentially better alternatives. The implications are profound, as entrenched precedents can hinder adaptation and responsiveness to changing environments.

Related terms

Equilibrium:

A state in a game where all players have chosen strategies that are optimal given the strategies chosen by others, resulting in no player having an incentive to unilaterally change their strategy.

Coordination Games:

Games where players benefit from making the same choices or coordinating their strategies, often leading to multiple equilibria based on players' expectations and prior experiences.

Best Response:

The strategy that yields the highest payoff for a player, given the strategies chosen by other players in the game.