LC18: LearningCurve - Ch. 18: Game Theory and Strategic Choices

Which statement is NOT true about collusion?

Collusion is legal because it helps firms survive.

_____ is an agreement by rivals not to compete with each other, but to all charge _____ prices instead.

Collusion; high

_____ 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

The Prisoner's Dilemma yields:

a failure to cooperate.

If you consider all possible outcomes and construct a payoff table, you can describe the choice of Coke and Pepsi regarding their advertising decision to either advertise or not advertise as:

either to cooperate or to defect from the plan.

To make good strategic decisions, you need to consider all the possible outcomes, which include:

every combination of choices that both you and other players might make.

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

inefficient

You are in a finitely repeated game if you and other players _____.

interact a fixed number of times

You can aggressively bargain over your wages with your boss if the other side is _____ and your best response will be that _____.

passive; you get a high wage

If all of the oppressed citizens protest at the same time, you'll all be safe because the police will be severely outnumbered. This example shows that _____ and this is a coordination problem _____.

political revolutions require coordination; between thousands of people

Neither player can credibly commit to cooperating, and neither expects the other to cooperate. This example shows why:

the Prisoner's Dilemma leads to the failure of cooperation.

In an indefinitely repeated game, you have a tool to solve the Prisoner's Dilemma, which is _____, and this can be sufficient to _____ cooperation.

the threat of punishment; sustain

A basic logic that is common to all strategic interactions is that making a good choice requires that:

you anticipate what others will do.

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

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.

Both Coke and Pepsi spend billions of dollars on advertising, so the CEO of Pepsi asks the CEO of Coke to stop useless advertising. This plan will work only if:

Coke cooperates.

Which statement is NOT true about the coordination game in which all players coordinate their choices?

Coordination is always easy.

What will be the best response of businesses when households cut back on spending?

Cut back on production and reduce hiring

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

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

Game theory

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.

Your business faces a choice between competing technologies. Your customers and suppliers are facing the same decision that your business is. Are there many equilibria in this case, and what will your best response be in a coordination game?

Many equilibria; Using the same system that customers and suppliers use

What is likely to happen when both parties agree to cooperate and trust each other?

Mutual cooperation that leads to the best outcome

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

Which statement is NOT true about the Prisoner's Dilemma in the advertising case of Coke and Pepsi?

The best response for each is to cooperate.

Which statement is NOT true about equilibrium outcomes?

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

Businesses can create jobs for skilled workers and unskilled workers. Workers can choose to invest in training or not to get training. The coordination game of both businesses and workers has multiple equilibria. Which statement is NOT true about equilibria in the labor market?

The good equilibrium refers to high-income, low-skilled jobs.

Which statement does NOT explain that politics is full of game theory?

The number of votes for a party reflects how good its policies are.

You and another driver have to choose between driving on a highway and taking back roads. When you and the other driver don't coordinate, what will likely occur if both of you choose to take the same highway? Which type of a coordination game can help produce the best outcome?

Traffic on roads; Anti-coordination game

If the first mover is aggressive and commits to take half of the market share, can another firm get any second-mover benefits?

Yes, it can adapt its strategy and gain the benefits of flexibility.

When your firm decides to make a new investment, do strategic interactions include the choices of your partners?

Yes, your profits depend on how much your partners invest in the project.

Which statement is NOT true when you put yourself in someone else's shoes?

You will pick their choice such that you will maximize your own payoff.

When everyone chooses their best response to the choices that other players are making, we call the outcome _____.

a Nash equilibrium

The check mark method can help you find:

a Nash equilibrium.

The adoption of new technologies involves _____ because your best response is to use a system that is _____ whatever system your suppliers and customers use.

a coordination game; compatible with

Your customers want to shop when your store is open, and you want to open your store when your customers are out shopping. This example shows:

a coordination problem between businesses and customers.

An anti-coordination game occurs when the best outcome involves taking _____ the other player.

a different, but complementary action to

The Prisoner's Dilemma leads to the failure of cooperation because:

agreements to cooperate are not credible.

The idea of putting yourself in someone else's shoes is critical to understanding how _____, so your best response usually is dependent upon _____.

any interaction will play out; thinking like your rivals

How you might box, play chess, or choose how much product to make are all decisions involving strategic interactions between actors that come from ______.

applying the interdependence principle

Under the check mark method, you can put a check mark next to each player's _____, and then an outcome with a check mark for each player is _____.

best response; a Nash equilibrium

A Nash equilibrium occurs when:

both sides choose their best response.

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

When firms collude, they all agree to _____ and hope that they'll all _____.

charge a higher price; earn larger profits

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

commitment; flexibility

The tragedy of the overuse of common resources is due to a failure to _____, which is considered an illustration of _____.

cooperate; the Prisoner's Dilemma

Fantastic E-book knows that it will interact with a foreign e-book firm exactly five times. So, in the fourth period, the CEO of Fantastic E-book will likely _____ because this round is equivalent to a _____.

defect; one-shot game

Comparing the benefits of cooperating and defecting in the Prisoner's Dilemma, _____ yields bigger benefits, causing cooperation to _____.

defecting; fail

The Grim Trigger strategy ensures that any defection _____ any possibility of future cooperation because after either player defects, your rival will _____.

destroys; continue to defect forever

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 ________.

dominant strategy; choice

The real problem of the Prisoner's Dilemma is _____.

getting people to cooperate

Firms make an agreement to collude, but they may fail because of the Prisoner's Dilemma. Failure to cooperate in this case is _____ for society because _____.

good; it prevents collusion from occurring

Game theory is particularly useful in the sort of _____ stakes strategic interactions that often arise in _____.

high-; oligopolies

The interdependence principle tells you to focus on:

how your decisions are intertwined with those of others.

In a(n) _____ repeated game, you don't know when your interactions will end, so there is _____.

indefinitely; no last period

The name "Prisoner's Dilemma" comes from a scenario in which the police try to get two suspects to cooperate and to think about their best response. As a result, the Prisoner's Dilemma:

leads the two suspects to confess.

In strategic games such as those in the tragedy of the commons, players have _____ incentives, so communication won't work because _____.

opposing; you're afraid that others may fool you

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

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

second-mover advantage

Under the one-shot Prisoner's Dilemma, firms will defect rather than cooperate because defecting is an attractive _____ option that yields _____.

short-run; a large profit

Which is an example in which government laws and regulations help enforce coordination?

tell people to drive on the left-hand side of the road