Econ Ch. 9

Which of the following are examples of tit-for-tat strategies? a. A friend forgets to send you a birthday card this year, so you decide not to send one to her on her next birthday. b. Your friend let you borrow her class notes last week, so you decide to skip class again this week. c. You and your roommate take turns buying toilet paper, milk, and other shared items. d. Your book club chooses a book you don't want to read, so you decide not to go this month.

A, C

A town's two gas stations are each considering lowering prices to attract more sales. How this affects the profits for each gas station depends on whether the other station also lowers prices. The decision matrix below shows the payoffs, depending on what each player decides to do. Which of the following scenarios constitute a Nash equilibrium? a. Both gas stations charge a lower price. b. Gas station B lowers prices and gas station A keeps higher prices. c. Gas station A lowers prices and gas station B keeps higher prices. d. Both gas stations charge a higher price.

A, D

Which of the following are examples of first-mover advantage? a. You make an offer on a house. The seller can only accept or reject the offer. b. You and your roommate are dividing chores. The chores are written on slips of paper and drawn from a hat. You get to draw first. c. You are first in line to buy a raffle ticket. d. You can take vacation whenever you like, as long as no other employees are also scheduled to take vacation. You submit your vacation requests first this year.

A, D

In the sequential game shown in the figure below, what choices will Players A and B make? Player A will choose __________ and then B will choose _________. The resulting payoffs will be _________.

Strategy 2; Strategy 4; B: 5, A:8

Suppose you are moving out of the country and need to sell your car fast. True or false? You are likely to get lower offers from used-car dealers if they find out that you are moving away soon.

True

In the sequential game shown in the figure below, does Player A have a first-mover advantage? Yes or No

Yes

Felix and Sam are roommates. They both want the dishes to be washed, but each would prefer that the other person do it. Using the decision matrix below, where their preferences are ranked from 1 (lowest) to 4 (highest), consider what the outcomes will be in the below scenarios. a. If Sam does dishes: b. If Sam does not do dishes: c. If Felix does dishes: d. If Felix does not do dishes: e. The likely outcome is that:

a. Felix prefers not to do dishes b. Felix will not do the dishes either . c. Sam prefers not to do dishes d. Sam will not do the dishes either . e. There will be dirty dishes in the sink

Two families are trying to decide whether to donate to a fund to build a public park. a. The Nash equilibrium is __________. b. Suppose Family A agrees to match the donation of Family B. Under these new circumstances, Family B will _________ and Family A will __________.

a. Neither family donates b. donate; donate

Which player is likely to have higher bargaining power: an established company shopping around for a new parts supplier, or a start-up company trying to sell its parts? a. The start-up because it doesn't have established relationships b. The established company because it has existing supplier relationships

b. The established company because it has existing supplier relationships

Many warrior cultures have codes of conduct that make retreat from battle and other cowardly behaviors extremely dishonorable. Warriors are expected to die bravely in battle rather than surrender; if they do retreat, they face an enormous social stigma. These codes often ______________ prevent warriors from winning help warriors to win their battles as they ______________.

help warriors to win; limit the warriors' choices to either fight or die

A town's two hotels are each considering upgrading their rooms to attract more sales. How this affects the profits for each hotel depends on whether the other also upgrades its rooms. The decision matrix in the figure below shows the payoffs, depending on what each player decides to do. 1. Identify any Nash equilibria. a. Both hotels upgrade their rooms. b. Both hotels stay the same. c. Hotel B upgrades its rooms and Hotel A stays the same. d. Hotel A upgrades its rooms and Hotel B stays the same. 2. This game ________ of a prisoner's dilemma.

1. Both hotels upgrade their rooms 2. is not

The figure below shows a sequential game in which one player decides whether to injure another player. The injured player can then choose whether to sue, which involves costly legal fees. 1. What is the predicted outcome in this "game"? a. The injurer does no harm and does get sued. b. The injurer does harm and does get sued. c. The injurer does no harm and does not get sued. d. The injurer does harm and does not get sued. 2. The injured party threatens to always sue when injured. Is this a credible threat? Yes or No What is the predicted outcome if the injured party has threatened to always sue when injured? a. The injurer does no harm and does get sued. b. The injurer does no harm and does not get sued. c. The injurer does harm and does not get sued. d. The injurer does harm and does get sued. 3. What is the predicted outcome if the injured party has made a binding commitment always to sue when injured? a. The injurer is worse off if he gets sued than if he does no harm. b. The injured is better off if he is harmed and sues. c. The injurer is better off if he gets sued after harming than if he does no harm. d. The injured is better off if he does not sue after being harmed.

1. D 2. No 3. C 4. A

Two neighbors share a pond they have stocked with catfish. They have agreed upon the amount of fish each can catch in order for the stock of catfish to replenish itself. If one neighbor increases the amount he fishes a little bit, the catfish stock could still replenish itself. If both neighbors increase their fishing, the stock will not be sustainable. Both neighbors would like to cheat and increase the amount they fish, but want the other neighbor to stick to the agreement. 1. The noncooperative outcome is: a. for both neighbors to increase fishing, which will make them both worse off. b. to stick to the original agreement about the amount of fishing that is sustainable without having to restock the pond, which makes them both worse off. c. for both neighbors to increase fishing, which will make them both better off. 2. The cooperative outcome is: a. for both neighbors to increase fishing, which will make them both better off. b. for both neighbors to increase fishing, which will make them both worse off. c. to stick to the original agreement about the amount of fishing that is sustainable without having to restock the pond. 3. The cooperative outcome could be achieved if: a. the financial responsibility to restock the pond falls on whoever cheats. b. neither neighbor is allowed to fish at all. c. if the pond is stocked with more fishes this year.

1. for both neighbors to increase fishing, which will make them both worse off 2. to stick to the original agreement about the amount of fishing that is sustainable without having to restock the pond 3. the financial responsibility to restock the pond falls on whoever cheats.

Hal is negotiating his salary for a job offer. Hal's potential employer moves first by making an offer. Hal knows he will accept the offer but asks for a couple of weeks to think it over. Which of the following could explain why Hal did this even though the offer was acceptable? a. Hal is desperate to get paid right away. b. Hal is hoping that the employer will see this as a sign that he is considering other options and offer more. c. Hal is hoping that the employer is impatient for the work to begin and will therefore offer more to get a quicker decision. d. Hal has a hard time pursuing a commitment strategy such as accepting a job, and so he needs some time before making such a commitment. e. Hal must have a dominant strategy to accept any offer.

B, C

Two families are trying to decide whether to donate to a fund to build a public park. a. The mutually beneficial outcome is __________ b. Acting in their best interests, Family A will __________ and Family B will __________. c. This game __________ because __________.

a. Both families will donate b. not donate; not donate c. is an example of prisoners' dilemma; the players do not reach the mutually beneficial outcome

Two companies are considering whether to enter a new market. The decision matrix in the figure below shows each company's payoff, depending on whether one, both, or neither enters the market. Company A is in Costa Rica. Company B is in Nicaragua. a. If Company A enters, what should Company B do? b. If Company B enters, what should Company A do? c. Suppose the Nicaraguan government releases a press statement that it will cover any profit losses for Company B. How much will this policy cost the Nicaraguan government?

a. Not enter b. Not enter c. $0

Taking an exam can be considered a game with rules, strategies, and payoffs for the game. For each example below, indicate if it is a rule, a strategy, or payoff for the exam game: a. Having an exam time limit, such as one hour: b. The average score on the exam was 76 percent: c. Starting with the questions that are worth the most points: d. A student failing the exam: e. Students must show their computations when solving a problem: f. Students writing down important formulas that they have memorized at the top of the exam: g. Answering every third question with C on a multiple choice test:

a. Rule b. Payoff c. Strategy d. Payoff e. Rule f. Strategy g. Strategy

You are going to an auction. Say whether each of the following is a rule, a strategy, or a payoff. a. Bids must increase in increments of $20: b. The highest bid wins the item being auctioned: c. You wait until the bidding is just about to close before you enter a bid: d. All of the money raised from the auction goes to charity:

a. Rule b. Payoff c. Strategy d. Rule

Use the figure below to determine the dominant strategy for each player. a. What is the dominant strategy for Player A? ________ b. What is the dominant strategy for Player B? ________

a. Strategy 1 b. Strategy 1

You are playing a game with a friend. It's your move but you don't have a dominant strategy. Your payoff depends on what your friend does after your move. You consider flipping a coin to decide what to do when you realize that your friend has a dominant strategy. Which of the following statements is true about your situation? a. Using backward induction you can predict what strategy will help you reach your optimal payoff. b. There is no way for you to know what move or strategy your friend will choose until you have made our move first. c. Using backward induction gives you the same probability of reaching your optimal payoff as flipping a coin does. d. Your friend has a clear advantage over you as she has a dominant strategy and you do not.

a. Using backward induction you can predict what strategy will help you reach your optimal payoff.

In which of the following situations is a tit-for-tat strategy more likely to be successful at maintaining a cooperative equilibrium? a. An agreement of mutual support between players on a reality television show, in which the relatively worst-off player is eliminated every episode b. A peace treaty between neighboring countries

b. A peace treaty between neighboring countries

Job offers could be considered a one-round bargaining game with a first-mover advantage: The company offers you a job at a certain salary, and you can take it or leave it. The company may not capture all the surplus in this game, even if you can't make a counteroffer. Why is this? a. The company would assume that you have a dominant strategy to always accept their offer, and so they would see no need to make their offer very attractive (as any job is better than no job). b. The company would assume that you do not have a dominant strategy to always accept their offer, and so they want to make you an offer attractive enough that you accept it over some other offer you may have. c. Both you and the company would have a dominant strategy to always accept any deal, as both sides are already heavily vested in the process by the time you reach an actual job offer. d. The company would have a dominant strategy to always present the best offer they can afford, to guarantee that you accept it over some other offer you may have.

b. The company would assume that you do not have a dominant strategy to always accept their offer, and so they want to make you an offer attractive enough that you accept it over some other offer you may have.

Company A is considering whether to invest in infrastructure that will allow it to expand into a new market. Company B is considering whether to enter the market. Assume the companies know each other's payoffs. Using the figure above, choose the outcome that will occur from the list below. a. Company A will not invest and Company B will enter the market. b. Company A will invest and Company B will not enter the market. c. Company A will invest and Company B will enter the market. d. Company A will not invest and Company B will not enter the market.

c. Company A will invest and Company B will enter the market.

Melissa let Jill cheat off of her during a history exam last week. Now Melissa is threatening to tell on Jill unless Jill pays her $50. Use the decision tree below to determine the likely outcome of this situation. a. Jill will pay Melissa to keep her quiet and Melissa will still tell. b. Jill will not pay Melissa to keep her quiet and Melissa does tell. c. Jill will not pay Melissa to keep her quiet and Melissa does not tell. d. Jill will pay Melissa to keep her quiet and Melissa does not tell.

c. Jill will not pay Melissa to keep her quiet and Melissa does not tell.

You have just played rock, paper, scissors with your friend. Which of the following outcomes is a Nash equilibrium? a. You played scissors and your friend played paper. You won. b. You played scissors and your friend played scissors. You tied. c. There is no Nash equilibrium. d. You played scissors and your friend played rock. You lost.

c. There is no Nash equilibrium

Which of the following is an example of how you could use a tit-for-tat strategy to motivate your roommate to do his share of the cleaning? a. If your roommate does not pull his weight on cleaning, he must pay a monthly fee. b. Divide up the duties so that one of you cleans and the other one cooks dinner. c. If your roommate does not pull his weight on cleaning, you stop doing your portion of the cleaning as well. d. Whoever cleans the least each month has to pay for your mutual Internet bill.

c. If your roommate does not pull his weight on cleaning, you stop doing your portion of the cleaning as well.

There are two firms, each having the option of polluting during production or cleaning up its production process such that it doesn't pollute. Of course, polluting is cheaper than not polluting. The payoffs for each of the choice combinations are shown in the decision matrix below. What kind of commitment strategy could keep these firms from polluting? a. The government recommends that the companies not pollute. b. The companies agree not to pollute. c. The government makes pollution illegal and charges a company a $75,000 fine if it is caught polluting. d. The environmental protection agency conducts a study on the dangers of pollution. e. The government makes pollution illegal and charges a company a $10,000 fine if it is caught polluting.

c. The government makes pollution illegal and charges a company a $75,000 fine if it is caught polluting.

You have been texting with your friends trying to make plans for this evening. Your best friend Jocelyn is not sure if she will finish her homework in time to come out, but if she does, she wants to go to a new restaurant on the north end of town that you've both been wanting to try. Another group of friends is going to a restaurant on the south end of town, but you've already been to this restaurant and it was only okay. Overall, you would prefer to go to the restaurant with Jocelyn. But if Jocelyn isn't coming out, you would rather hang out with your friends than stay home. No one is returning your calls, but you need to get on the subway and head into town if you want to do anything this evening. You have to decide whether to head north or south. What can we say about a potential dominant strategy in this game? a. Your dominant strategy is to head south if you think Jocelyn is staying in. b. Your dominant strategy is to head south. c. You do not have a dominant strategy. d. Your dominant strategy is to head north if you think Jocelyn is coming out. e. Your dominant strategy is to head north.

c. You do not have a dominant strategy.

You like your job, but your boss gives lousy bonuses. You were recently offered a new job with better rewards and your friend wants to know if you intend to take it. You say, "It depends on whether the bonus this year is generous. Let's wait and see. We'll find out next week." The likely outcome of this game is your boss gives you a ______________ better lousy bonus and you ______________. If you want to stay at your current job and be better rewarded, you could improve your strategy if you: a. demand an increase in your bonus by a certain amount, but does not tell your boss about the job offer. b. adopt a dominant strategy to stay at your current position and make this known to your boss. c. tell the boss about the job offer you are prepared to take if your bonus structure does not increase by a certain amount. d. adopt a dominant strategy to accept the other position and make this known to your boss.

lousy; accept the new job c. tell the boss about the job offer you are prepared to take if your bonus structure does not increase by a certain amount.