Supplementary Reading: Game Theory

What It Is:

Game theory is a tool used to analyze strategic behavior by taking into account how participants expect others to behave. Game theory is used to find the optimal outcome from a set of choices by analyzing the costs and benefits t o each independent party as they compete with each other.

How It Works/Example:

Game theory explores the possible outcomes of a situation in which two or more competing parties look for the course of action that best benefits them. No variables are left to chance, so each possible outcome is derived from the combinations of simultaneous actions by each party.
Game theory is best exemplified by a classic hypothetical situation called the Prisoners' Dilemma. In this scenario, two people are arrested for stealing a car. They will each serve 2 years in prison for their crime.
The case is air-tight, but the police have reason to suspect that the two prisoners are also responsible for a recent string of high-profile bank robberies. Each prisoner is placed in a separate cell. Each is told he is suspected of being a bank robber and questioned separately regarding the robberies. The prisoners cannot communicate with each other.
The prisoners are told that a) if they both confess to the robberies, they'll each serve 3 years for the robberies and the car theft, and b) if only one confesses to the robbery and the other does not, the one who confesses will be rewarded with a 1 year sentence while the other will be punished with a 10 year sentence.

In the game, the prisoners have only two possible actions: confess to the bank robbery, or deny having participated in the bank robbery.
Since there are two players, each with two different strategies, there are four outcomes that are possible (follow the reference, study the scheme)

The best option for both prisoners is to deny committing the robberies and face 2 years in prison for the car theft. But because neither can be guaranteed that the other won't confess, the most likely outcome is that both prisoners will hedge their bets and confess to the robberies -- effectively taking the 10 year sentence off the table and replacing it with the 3 year sentence.

Why It Matters:

Economists use game theory to understand the behavior of firms in an oligopoly (think OPEC and other cartels) -- specifically in regards to price fixing, price wars, collusion, etc. Game theory gives economists a way to predict outcomes when firms engage in these kinds of behavior

Vocabulary Notes

1. optimal outcome – наилучший результат

2. the costs and benefits – издержки и экономический эффект

3. competing parties – конкурирующие стороны

4. high-profile bank – солидный, крупный банк

5. to deny committing the robberies – отрицать совершение грабежей

6. to hedge one’s bets – подстраховать себя

Text Assignments

1. Read and translate the passage of the text, printed in italics.

2. Divide the text into the parts according to the ideas given in it.

3. Choose the suitable headline for each part.

4. Write out key words and word combinations and give their Russian equivalents.

5. Render the text in Russian / English using the following expressions:

1) The text is headlined … - текст озаглавлен …

2) The aim of the text is to give the readers some information on …- целью текста является информировать читателей о …

3) The text describes … - в тексте описывается…

4) The author points out/ stresses… - тор подчеркивает, акцентирует…

5) The author comes to the conclusion that … - автор приходит к выводу…

Unit 4. Talking about Careers in Economics

Before You Read

Answer the questions:

1. Where would you like to work after graduating from the University?

2. What career are you planning to make in future?

3. Below there is a list of some of the terms and terminological expressions you will come across in the following text. See if you understand them. Consult a dictionary: http//www.multitran.ru to help you, check with the key.

Key Vocabulary

1. to monitor trends	11. to distribute resources
2. to develop forecasts	12. to conduct research
3.to obtain data	13. to collect data
4. to present concepts	14. to perform economic analysis
5. to specialize in a particular area	15. to examine the market
6. to handle the competition	16. to investigate the area
7. to forecast trends	17. to apply techniques
8. to explain reasons	18. to formulate models
9. to assess conditions	19. to provide the risk assessment
10. to administer surveys	20. to work under pressure of deadlines