chp 18 econ

Which of the following is NOT one of the four steps for making good strategic decisions? A. Consider all the possible outcomes. B. Assume that others will defer to your action. C. Think about the "what ifs" separately. D. Play your best response.

B. Assume that others will defer to your action.

Which of the following statements regarding a Nash equilibrium is TRUE? A. Cooperation between players could not improve the outcome. B. No player can do better by unilaterally changing his or her choice. C. All players choose their overall best response without regard to the other player's likely choice. D. Each player's expectation of the other player's choice is often incorrect.

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

interdependence principle

focusing on how your decisions are intertwined with those of others.

Strategic interactions

your best choice may depend on what other people choose, and likewise, their best choices may depend on what you choose.

A Nash equilibrium can be identified on a payoff table when: A. a check mark is put next to each player's best response, and there is a cell with a check mark for each player. B. each player has an equilibrium that is opposite that of the other player, so they are not in conflict. C. a check mark is put next to each player's best response, and there is a cell with no check marks in it. D. one cell contains the highest gain for each player, although it may not be the player's best response.

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

When a player faces the same strategic interaction a fixed number of times, the player is engaged in _____ game. A. a finitely repeated B. a limited repetition C. a temporarily constant D. an internally repeated

A. a finitely repeated

When a player's best response is to take a different (but complementary) action to the other player, then both participants are playing _____ game. A. an anti-coordination B. a coordination C. a strategic dilemma D. a Coase equilibrium

A. an anti-coordination

A simultaneous game is one in which: A. each player must choose without knowing the other player's choice. B. each player learns of the other's intention at the same time, before the final choices are made. C. the alternative outcomes all occur on the same time line. D. regardless of which choices are made, the resulting outcome occurs at the same time.

A. each player must choose without knowing the other player's choice.

When resources are shared or owned in common, the Nash equilibrium leads to: A. higher profits than with unshared resources. B. underuse of resources. C. overuse of resources. D. lower profits than with unshared resources.

C. overuse of resources.

What problem arises in coordination games with multiple equilibria? A. It is difficult to achieve the commonly desired outcome. B. Players have no incentive to coordinate. C. The equilibria make all players worse off. D. The multiple equilibria mean that coordination yields no possible gain.

A. It is difficult to achieve the commonly desired outcome.

Once an original decision has been made, what happens on a game tree with each additional decision made by a player? A. A new tree is created. B. A new branch is formed. C. A root sprouts downward. D. A merger occurs between two branches.

B. A new branch is formed.

When using coordination games to look at the issue of bank runs, the best outcome occurs when: A. some people, but not all, keep their money in the bank. B. all people keep their money in the bank. C. people do not use the banking system. D. people run to withdraw their money from the bank.

B. all people keep their money in the bank.

Coordination problems can be solved through each of the following approaches EXCEPT: A. laws and regulations. B. backward reasoning. C. communication. D. focal points, culture, and norms.

B. backward reasoning.

When players in a game collude, they: A. choose to avoid any outcomes that harm their rival. B. make agreements not to compete with each other and, typically, to charge high prices. C. change their products, so that they are in different markets and not competing with each other. D. act independently to try to eliminate other players from the game.

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

A basic logic that applies to all strategic interactions is: A. risk must be eliminated. B. making a good choice requires that you anticipate what others will do. C. action should not be taken until there is a clear best choice. D. games should be avoided, so that decisions can be based on facts.

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

A Grim Trigger strategy is to: A. defect on all agreements. B. punish rivals who do not cooperate. C. take extreme actions whenever profits fall. D. aggressively announce actions in advance.

B. punish rivals who do not cooperate.

4 steps of making good Strategic Decisions

Step one: Consider all the possible outcomes Step two: Think about the "what ifs" separately Step three: Play your best response Step four: Put yourself in someone else's shoes

Best response

the choice that yields the highest possible payoff for you, given the other player's choice.

What is game theory?

the study of how people behave in strategic situations