ch 13 Econ micro
The tragedy of the commons can be modeled as a prisoners' dilemma game when the __________.
dominant strategy equilibrium leads to the destruction of a common resource.
When can backward induction be used to arrive at the equilibrium for a game? In the case of,
extensive form games.
Identify the key assumption(s) made about a Nash equilibrium. (Check all that apply.)
-All players understand that other players understand the game. -All players understand the game and the payoffs associated with each strategy.
Although there are many examples of game theory in the real world, how well do you think specifics like payoff matrices, Nash equilibrium, and dominant strategies translate to reality? Which of the following are potential reasons game theory differs from reality? (Check all that apply.)
-Payoffs are determined by the attitudes and feelings of individuals as well as by their monetary returns. -One player may be more cunning, wiser, or more experienced than another.
Two firms are thinking of entering a new market. If one enters it will be successful but if a second enters both will suffer very large losses. Is there a first-mover advantage in this game?
Yes. The firm that goes first can enter and the firm that goes second will have no incentive to enter.
The prisoners' dilemma is ____________ with a ____________ equilibrium that is not the best outcome for both players.
a simultaneous move game; dominant strategy.
Economic agents (for example, consumers or firms) often do things that at first glance seem to be inconsistent with their self-interest. People tip at restaurants when they are on vacation even if they have no intention to return to the same place. Firms, sometimes, install costly pollution abatement equipment voluntarily. These deviations from Nash predictions can most likely be explained if __________.
an individual's benefits are defined not only by her own payoffs but also by the payoffs of others.
In real life extensive-form games:
both integrity and vengeance can be used as commitments.
In terms of the trust game, results show that if the second player does not have reputational concerns he will often ________ rather than ________
defect, cooperate
When there is no dominant strategy, a player's optimal strategy _____________ on the choices of the other player.
depends
When developing a dominant strategy in a simultaneous-move game, a player:
devises the same best response to every possible strategy of the other player.
More than one Nash equilibrium is possible if:
each player's best response changes based on the other player's strategy.
What is not an example of a real life zero sum game?
free market transaction.
One significant difference between extensive-form and simultaneous-move games is:
the timing of moves changes in extensive-form games.
When relating dominant strategies to real life experiences:
there seems to be a direct relationship.
A Nash equilibrium is ___________.
when players choose strategies that are best responses to the strategy of others.
Suppose that a player has a dominant strategy. Would she choose to play a mixed strategy (such as playing two strategies each with probability 50-50)? Why or why not?
No, because it would involve choosing actions other than the dominant strategy.
Suppose you were playing rock-paper-scissors as an extensive from game; first you choose rock, or paper, or scissors, and then your opponent makes a choice. Is there a first-mover advantage in this game?
No, if you show your move first you will lose every time.
A first-mover advantage occurs if __________.
the first mover to act in a sequential game gets a benefit from doing so.
A dominant strategy equilibrium exists if:
the relevant strategy for each player is a dominant strategy.
A zero-sum game is when ___________.
the sum of the payoffs is zero.
What is the difference between a pure strategy and a mixed strategy?
A pure strategy involves choosing one action, while a mixed strategy involves choosing different actions randomly according to preassigned probabilities.
All of the following statements about real life game theory are true except:
A pure strategy is usually best.
Which of the following statements about backward induction is true?
Each player tries to deduce the other's moves by looking forward.
How is a Nash equilibrium different from a dominant strategy equilibrium?
For a given game, there can only be one dominant strategy equilibrium but multiple Nash equilibriums.
In a Nash equilibrium:
neither player can change strategy and improve his or her payoff.
Jack's Bakery is one of several bakeries in Jack's hometown. Since it is impossible for him to know the price each of his competitors is charging for every item they offer, Jack focuses on customer service and keeps his prices consistent, employing a ______________ strategy. OPEC has quarterly meetings to determine where and how much oil they will drill in order to raise or lower the price, employing a _______ strategy.
pure, mixed
A dominant strategy equilibrium is ____________.
the combination of strategies where each strategy is a dominant strategy
Is a player's best response in a game the same as his dominant strategy?
Not necessarily. If a player has a dominant strategy, then it is his best response; however, every best response is not always a dominant strategy.
All of the following statements are true about simultaneous-move games except:
Players know their opponent's choices.
A trust game is a sequential prisoners' dilemma. This means that it is likely that the outcome of the game is not socially efficient. Which of the following factors would likely result in a more socially efficient outcome in real life?
Reputational concerns.
What is backward induction?
The procedure of solving an extensive-form game by first considering the last mover's decision.
A zero-sum game means it ___________ possible for both players to find an optimal strategy with a given move; therefore, a Nash equilibrium ____________ exist.
is not, does not
Dominant strategy equilibria can result in negative consequences in real life when:
it is in the best interest of a firm to not clean up its pollution providing its competitor does.