Econ chapter 18

In a two-player game, which option describes a payoff table?

It lists payoffs to both players in each cell.

Suppose your hot dog stand and a competitor's burger stand are playing a game to get customers that has the same payouts as the Prisoner's Dilemma, such that one firm will only cut its prices if the other does. In this case, a price cut is considered a ________ because one player's best choice depends on another player's ________.

strategic interaction; choice

Businesses can either create skilled jobs that require training or create unskilled jobs. What will be the best response for workers if businesses decide to create unskilled jobs, and will this lead to a good or bad equilibrium?

Not to get training; Bad equilibrium

Your firm and your competitor see an opportunity to enter new markets. You both have the choice of entering the same market or not entering the same market. The possible outcomes can be as follows: fierce competition, either firm makes a profit and the other makes zero profit, and neither firm makes a profit from that new market. What will be the best outcome in this case?

One firm enters and earns a healthy profit, and the other doesn't enter.

You choose the choice that yields the highest possible payoff for you, given the choices made by others. Which step for making good strategic decisions does this refer to?

Step three: play your best response

You and your friend develop similar apps that are in the process of launching. You make an agreement with your friend to launch your apps on the same day. What will happen if you cooperate but your friend releases the app first?

Your friend will have a higher payoff.

A Nash equilibrium can be identified on a payoff table when:

a check mark is put next to each player's best response, and there is a cell with a check mark for each player.

Use the table, with data for Tasha and Hui Er, to answer the question. Use the check mark method to determine which cell contains a Nash equilibrium. Under a Nash equilibrium, Hui Er earns profits of _____, and Tasha earns profits of _____.

$3,000; $3,000

Use the table with data for Bella and Martin to answer the question. With no cooperation, the Nash equilibrium yields Bella a profit of _____ and Martin a profit of _____.

$4,000; $3,500

Use the table with data for Maria and Jose to answer the question. If Jose charges $8, Maria should charge _____. If Jose charges $4, Maria should charge _____.

$4; $4

Use the table with data for Gizelle and Devin to answer the question. Devin tries to put himself in Gizelle's place. He concludes that if he (Devin) charges $8, then Gizelle will charge _____ to earn a profit of _____.

$7; $6,000

Which statement is NOT true about equilibrium outcomes?

The equilibrium outcome is an outcome that makes both parties better off.

Two truck stop companies are looking to each build a new gas station in the state of Iowa. There are two towns they can build in. If they both build in the same town, they will compete away each other's economic profits. If they build in different towns, each will get economic profits from being the only gas station in town. In this case the best strategy is for each firm to ______, and this is an example of a(n) _______ game.

build in a different town; anti-coordination

If the market yields its largest surplus when all parties cooperate, then when any party defects, the result is a(n) _______ outcome.

inefficient

When players in a game collude, they:

make agreements not to compete with each other and, typically, to charge high prices.

When resources are shared or owned in common, the Nash equilibrium leads to:

overuse of resources.

Walmart offers the price-matching policy. If you find a good with a lower price, it'll offer you that lower price. This example shows a business strategy in which Walmart tries to _____.

regain the second-mover advantage

Once American Airlines credibly commits to following through on its aggressive choice of running three flights, United Airlines will understand that its best response is to schedule _____ flights. This means that American Airlines gains _____.

fewer; a first-mover advantage

The term "multiple equilibria" describes a situation in which:

there is more than one equilibrium.

Coordination is difficult because:

there's more than one equilibrium.

A first-mover advantage arises because:

your aggressive choice forces the other to respond less aggressively.

Apple and Samsung are considering cutting their advertising budgets. If Apple expects Samsung to defect, then its best response is to defect; likewise, if Samsung expects Apple to defect, then its best response is to defect. Using a check mark method, where do you place your check marks in a payoff table?

Apple defects; Samsung defects

Two gas stations, Shell and Exxon, are located opposite to each other. Both owners of these gas stations agree to end the price war. The owner of Shell thinks strategically and comes up with the following payoff table. Which will be Shell's best response, and what is a Nash equilibrium in this case?

Defect; Both cut their prices

Which of the following statements regarding a Nash equilibrium is TRUE?

No player can do better by unilaterally changing his or her choice.

In the process of bargaining over your wage with your boss, your boss and you can bargain either aggressively or passively. The anti-coordination game will have different outcomes depending on the action of each player. Which statement is NOT true about the outcomes in this case?

Regardless the action of your boss, you'll get a higher wage only if you bargain aggressively.

Farmer Ed and Farmer Al agree to graze their sheep at the town square every few days. But each knows that it's not illegal to graze sheep every day and suspects that the other farmer may not know about this. If the farmers do not trust each other, which choices will be a Nash equilibrium of these farmers?

Both graze their sheep daily.

Which example is NOT an example of anti-coordination?

In a political protest, if other activists protest, your best response is to protest.

Which statement is NOT true about the first-mover advantage?

It gives you flexibility to adapt your strategy based on choices made by others.

Which statement is NOT true about the payoff table?

It summarizes all the possible positive outcomes.

_____ make(s) both cooperation and coordination difficult to achieve. This is why people need _____ to help them sustain cooperation and coordinate on good outcomes.

Self-interest; government policies

When you try to figure out what decision you would make if you faced the same incentives that others faced, to which step for making good strategic decisions does this refer?

Step four: put yourself in someone else's shoes

Which statement is NOT true about the Grim Trigger strategy?

Which statement is NOT true about the Grim Trigger strategy?

Which statement is NOT true about an indefinitely repeated game?

You and your rival will defect at a second-to-last period.

Which statement is TRUE about one-shot games?

You don't need to worry about how others will treat you in the future.

The first-mover advantage is about the benefits of _____, whereas the second-mover advantage is about the benefits of _____.

commitment; flexiblity

Following the Grim Trigger strategy in regards to firms colluding under the Prisoner's Dilemma, your firm should _____ in this round and your best response will be _____.

cooperate; medium profit today and medium profit for future cooperation

A basic logic that applies to all strategic interactions is:

making a good choice requires that you anticipate what others will do.

The _____ gives you the flexibility to adapt your strategy in light of the choices made by others.

second-mover advantage

Game theory is:

the science of making good decisions in situations involving strategic interactions.

Use the table about Hikaru and his parents to answer the question. What is this kind of table called?

a payoff table

You will go to a party if your friend decides to go with you. This is an example of:

a strategic interaction.

The Grim Trigger strategy tells you that you should defect when _____.

any player has defected in any previous round

Which of the following is NOT one of the four steps for making good strategic decisions?

Assume that others will defer to your action.