Strategic Behavior
Chapter 10 – Private Information
Outline
Introduction
This chapter focuses on solving games of incomplete information by changing them to games of
imperfect information.
10.1
Introduction
10.2
The Munich Agreement
10.3
Bayesian Games and Bayes-Nash Equilibrium
 Conditional Probability
Notes:
Behavioral Cascades - A behavioral cascade occurs when the probability that a person takes a
particular action is higher when others have previously chosen that action. Informational
cascades are behavior cascades that are driven by learning. Behavioral cascades can be driven by
psychological forces such as a desire to conform or “fit in.”
Conditional probability can be used to determine the likelihood of a particular event occurring.
The likelihood of an event occurring allows players to effectively determine the expected value
of a particular strategy.
Key Terms: Bayesian Nash equilibrium; conditional probability