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.