Chapter 9. Games and Strategic Behavior

The three basic elements of a game are

- The payoffs each player receives -the players -the strategies available to each player

Consider the decision to the right. What is each player's equilibrium payoff?

10 for the waiter and 5 for the diner

Historically, cartel agreements have been easy to maintain

False

Psychological incentives are not useful in solving commitment problems

False

A ____________________ is a coalition of firms that agrees to restrict output for the purpose of earning an economic profit

cartel

Players face a ________________ problem when they cannot achieve their goals because of an inability to make credible threats and promises

commitment

A ____________ threat is a threat to take an action that is in the threatener's interest to carry out.

credible

The diagram on the right is a

decision tree

If a player has a strategy that yields a higher payoff no matter what the other players in a game choose, then that strategy is a

dominant strategy

If a player has dominant strategy, then any other strategy available to that player is a __________________ strategy

dominated

The player who moves first in a sequential game _______ a strategic advantage

may or may not have

A tit-for-tat strategy is a strategy for the repeated prisoner's dilemma in which players cooperate on the first move and then

mimic their partner's last move on each successive move

Consider the payoff matrix on the right. GM and Chryster must decide whether to invest in a new process. What is the Nash Equilibrium of this game?

Gm invests, and Chrysler doesn't invest

Any combination of strategy choices in which each player's choice is his or her best choice, given the other players' choices is a

Nash equilibrium

Brushing your teeth after lunch to avoid snacking in the afternoon is an example of

a commitment device

Deleting games from your computer to avoid spending too much time playing them is an example of

a commitment device

Leaving only $20 in your wallet to avoid spending to much is an example of

a commitment device

Leaving your laptop at work to avoid working from home in the evening is example of

a commitment device

The problem confronting oligopolists who are trying to from a cartel is a classic illustration of

The prisoner's dilemma

Consider the decision tree to the decision tree to the right. What is the equilibrium outcome of this game?

The waiter gives bad service

Commitment problems can be solved by altering people's

material incentives psychological incentives

Consider the table on the right. For American, the dominant strategy is to

raise ad spending

A prisoner's dilemma that confronts the same players not just once but many times is called ____________ prisoner's dilemma

repeated

Consider the decision tree to the right, in the equilibrium of this game, Smith's payoff is _______, and Jones's payoff is ______

60 105

In the game to the right, relative to the equilibrium outcome, both players would be better off if

Jones could make a credible promise to choose the bottom branch

Shouting at parties

May make everyone worse off, but is a dominant strategy for each individual

Consider the decision tree to the right. Who has the first move in this game?

Smith

Consider the decision tree to the right. What is the equilibrium outcome of this game?

Smith chooses the top branch, and jones chooses the bottom branch

A new firm entering into a market should ________ offer a product that is similar to those already sold in the market

Sometimes

In a sequential game, the player who moves last _________ has a strategic advantage

Sometimes

In a sequential game, the player who moves last ______________ has a strategic advantage

Sometimes

Consider the table on the right, For American, leaving ad spending the same is

a dominated strategy

Consider the table on the right. For United, raising ad spending is

a dominated strategy

If a player has a dominant strategy, then any other strategy available to that player is

a dominated strategy

You would expect it to be _______________ to solve commitment problems when people feel a strong sense of guilt when they break a promise

easier

With regard to repeated prisoner's dilemmas, tit-for tat strategies have been shown to be effective at limiting defection in both computer simulations and in real-world cartel agreements.

false

A firm in a cartel agreement

has a strong incentive to undercut the prices of the other cartel members

Consider the payoff matrix on the right. In this game

neither Dodge nor Chevrolet have a dominant strategy

The geographic clustering of gas station is

optimal from the standpoint of gas station owners

A commitment device is a way to change incentives

so as to make otherwise empty threats or promises credible

In the fame to the right, relative to the equilibrium outcome, both players would better off if

the diner could make a credible promise to tip

A payoff matrix is a table that describes

the payoffs in a game for each possible combination of strategies

Relative to the equilibrium outcome in the game to the right, Jones could increase his payoff if he were able to make a credible promise to choose the ______

top branch

A decision _________________ is a diagram that describes the possible moves in a game in sequence and lists the payoffs that corresponds to each possible combination of moves

tree

Consider the payoff matrix on the right. GM and Chrysler must decide whether to invest in a new product. Is this game a prisoner's dilemma?

yes

A dominated strategy is a strategy that

yields la lower payoff than an alternative choice, regardless of the other player's choice