Deck 15: Introduction to Game Theory

Question 1

Once the state environmental protection agency devises its new policy to protect the environment, firms decide whether to remain in the state or move their operations to a neighboring state. In the language of game theory, this is an example of:

A)a cooperative game.
B)a Prisoner Dilemma game.
C)a threat.
D)a sequential game.

Answer 1

a sequential game.

Question 2

A player that makes a move first:

A)has usually an advantage unless there is a zero- sum game.
B)has always a substantial advantage.
C)can use surprise to her advantage.
D)has never a substantial advantage.

Answer 2

has usually an advantage unless there is a zero- sum game.

Question 3

Predicting behavior after it was determined that a comet will destroy life on earn in the next three days:

A)does not require the use of game theory.
B)does not require the use of Nash equilibrium.
C)is best accomplished using a repeated interaction setup.
D)can be done best using the last period problem.

Answer 3

can be done best using the last period problem.

Question 4

A poker player:

A)should never bluff
B)should optimize the mix of bluffing.
C)should rely on flair, not on mixed strategies.
D)should bluff on every hand.

Question 5

Your psychology class meets Monday to Thursday. On Thursday your prof tells you that you will have a surprise quiz next week. What day will you have the quiz?

A)Tuesday
B)Monday
C)Wednesday
D)Thursday

Question 6

Strategic interaction refers to:

A)the fact that economic actors' interaction affects the outcome.
B)the fact that economic actors plan ahead.
C)the fact that economic actors are rational actors.
D)the fact that economic actors maximize an objective function.

Question 7

Which of the following does not represent a strategic behaviour?

A)Build a factory with higher than needed capacity to deter possible entrants.
B)Spend heavily on advertising to signal a quality product.
C)Price below marginal cost to drive competitors out of business.
D)Choose output so that marginal revenue equal marginal cost.

Question 8

Strategies players use in a game:

A)represent levels of prices chosen by firms competing in a market.
B)represent choices in general.
C)represent levels of investment by two rival firms.
D)represent quantities chosen by firms being part of a given market.

Question 9

One possible explanation for low voter turnouts during elections is

A)the cost of voting is too high
B)there are rarely any good candidates
C)the free rider problem
D)do not vote" is the dominant strategy

Question 10

In a game of plain complements:

A)there is no relationship between a player's strategy and the payoff of the other player.
B)there is a positive relationship between the players' payoffs.
C)there is a negative relationship between a player's strategy and the payoff of the other player.
D)there is a positive relationship between a player's strategy an the payoff of the other player.

Question 11

Choosing a mixed strategy entails:

A)a channel of communication between the players.
B)using an incomprehensible strategy.
C)randomly generating a strategy by optimally combining pure strategies.
D)simply using pure strategies.

Question 12

The essence of game theory as used in economics:

A)refers to learning how to make money by gambling in a casino.
B)is to gain insights into the strategic interaction of economic players.
C)boils down to a few principles that can be applied in any economic model.
D)is to help building a sophisticated theory with no relevance for the real world.

Question 13

During the Cold War, the United States and Russia's Mutual Assured Destruction (MAD)equilibrium:

A)did not require rhetoric to function.
B)required the second strike to be automatic.
C)meant that one party wins and the other party is losing.
D)did not suffer from a credibility problem since both sides survived that war.

Question 14

Two firms are selling the same product. Each has a choice of setting a high price or a low price. If they both set high prices, they make $150 each. If they both set low prices, they each make $125. If one sets a low price and the other sets a high price, then the player with the low price makes $200, while the player with the high price makes $100. The Nash equilibrium of this game is:

A)one to set high price and the other to set low price.
B)there does not exist a Pure Strategy Nash Equilibrium for this game
C)both choosing high price.
D)both choosing low price.

Question 15

When a phone line is cut off in the middle of a conversation, and neither party returns the call, this is an example of:

A)low payoffs on the game.
B)a best response function.
C)multiple Nash equilibrium.
D)a Nash equilibrium.

Question 16

John Nash:

A)is a Canadian basketball player.
B)is a fictional movie character.
C)is an American mathematician who received the Nobel prize in Economics.
D)is an American economist.

Question 17

If a government provides an exporting firm with subsidies:

A)changes the payoff matrix in the foreign market.
B)unambiguously increase the welfare of the domestic economy.
C)it does not signal that it does not believe in free markets.
D)it will provide that firm with less incentives to be competitive.

Question 18

All but which of the following constitutes a Nash equilibrium?

A)collusive solution
B)Cournot equilibrium
C)noncooperative equilibrium
D)Bertrand equilibrium

Question 19

The Nash equilibrium in a game of plain substitutes with simultaneous moves:

A)entails strategy values that "are too large".
B)is Pareto- optimal.
C)entails strategy values that "are too small".
D)results from a game of mutual positive externalities.

Question 20

In a game of plain substitutes with simultaneous moves, the lens of missed opportunity is:

A)a set of possible outcomes that are inferior to the Nash equilibrium.
B)a lens- shaped area situated to the southwest of the Nash equilibrium.
C)attainable in a one- shot game.
D)a set of possible outcomes that involve higher strategies values by both players.

Question 21

In a game of chicken where where two people drive their cars at each other.Both have the choice of either driving straight or swerving. The first person to swerve loses. What is the dominant strategy?

A)both people swerve
B)there isn't one
C)neither person swerves
D)one person swerves

Question 22

The strategies are ranked by each player according to the:

A)levels of profit.
B)likelihood of success.
C)value of payoffs.
D)consumption patterns.

Question 23

Team production results in:

A)significant individual effort towards the common goal.
B)a Nash equilibrium that is Pareto- optimal.
C)a Nash equilibrium that is not Pareto- optimal.
D)a compassionate view of the world.

Question 24

The case of waste disposal in most cities in North America can be modeled as a prisoner dilemma:

A)because city households are hostile to each other.
B)due to the high incidence of crime in the city.
C)if certain conditions regarding the cost and benefits of proper disposal are met.
D)in all cases.

Question 25

The analysis of games of plain substitutes and complements:

A)proves that most social relationships lead to achieving full economic potential.
B)is a diagnostic tool needed to define optimal outcomes.
C)show the need for a better equilibrium concept other than the Nash equilibrium.
D)indicate the direction of the bias introduced by the pursuit of self- interest.

Question 26

In a duopoly, each firm is likely to choose a strategy which gives each firm:

A)the highest profit.
B)a different profit.
C)the lowest profit.
D)a profit which depends on random events.

Question 27

An equilibrium strategy combination is:

A)a set of dominant strategies.
B)obtained when one player's own strategy maximizes that player's own payoff.
C)a set of strategies containing the best responses of every player to the other players' best responses.
D)a fortunate turn of events.

Question 28

Two athletes contemplating the simultaneous use of performance enhancing drugs:

A)play a game of plain complements.
B)play a game other than prisoner's dilemma.
C)show poor sportsmanship.
D)will end up using too much drugs.

Question 29

Subgame perfection

A)is a concept applied to complex on- shot games.
B)yields several equilibria.
C)is obtained via forward induction.
D)is a refinement of Nash equilibrium.

Question 30

Team production is an example of:

A)a game of plain substitutes.
B)a game of chicken.
C)a game of coordination.
D)a game of plain complements.

Question 31

A dominated strategy:

A)is the strategy of all the other players except the dominant one.
B)is the strategy with the lowest payoff.
C)is the worst strategy for a player, regardless of what the other players in the game are doing.
D)is the one the player with smallest clout always uses.

Question 32

In which of the following would we expect that there is no dominant strategy?

A)the use of performance enhancing drugs in professional sports
B)the game of tick tack toe
C)advertising in oligopoly
D)the game output and keep

Question 33

The dominant strategy:

A)is the second best strategy.
B)is the best strategy for a given player, whatever the other players are doing.
C)is the best strategy of the dominant player.
D)is the strategy yielding the highest payoff.

Question 34

In games of plain complements with simultaneous moves the Nash equilibrium is

A)Pareto efficient if preferences are well behaved
B)is Pareto optimal compared to all other equilibria
C)Pareto efficient if there are no spillover effects
D)not Pareto efficient

Question 35

A player's payoff depends:

A)both on his action and other players' action.
B)on luck.
C)on the strategies chosen by the other players.
D)on his own strategy.

Question 36

The solutions to the problems signaled by the analysis of games of plain substitutes and complements:

A)can be found by further pursuing the self- interest of the participating actors.
B)lie in the search for institutions that solve social dilemmas.
C)can always be solved by the government intervention.
D)lie outside the realm of game theory.

Question 37

Often, oligopolists act without the benefit of communication. As a result they choose strategies that lead to lower profits than what could have been achieved with cooperation. This situation is known as:

A)the minimax strategy.
B)the collusion outcome.
C)the prisoner's dilemma.
D)a compromise.

Question 38

In numerous business courses, but very few economics courses, there are group projects. The Nash equilibrium for group projects is

A)for everyone to put in as little effort as possible
B)to coerce the poorest student to exert effort
C)for the best student to do all the work
D)the best student to coordinate the work of the others

Question 39

A game with a mixed strategy Nash equilibrium:

A)has no pure strategy equilibria.
B)may or may not have a pure strategy equilibria.
C)does not have well- defined best response functions.
D)will always have a pure strategy equilibria.

Question 40

In a game of plain complements:

A)the cross- effects in the payoff functions are positive.
B)there is no lens of missed opportunities.
C)there are mutual negative externalities.
D)the cross- effects in the payoff functions are negative.

Question 41

The non Pareto- optimal equilibria characterizing games of plain substitutes and complements:

A)yield conflicting results.
B)social interactions may lead to unattractive outcomes.
C)indicate that Adam Smith's invisible hand works properly.
D)imply that pursuing self- interest always achieve the full economic potential.

Question 42

Which of the following is true?

A)Inefficient bribe- taking in highly regulated economies can be regarded as a game of plain substitutes.
B)The demand for bribes is an increasing function of the sum of bribes.
C)Inefficient bribe- taking in highly regulated economies result in bribes that are efficient.
D)Bribing is immoral but it has beneficial social role.

Question 43

The Nash equilibrium in a game of plain complements with simultaneous moves:

A)entails strategy values that "are too small".
B)entails strategy values that "are too large".
C)is Pareto- optimal.
D)results from a game of mutual negative externalities.

Question 44

A strategy combination:

A)is a list of strategies, one for each player in the game.
B)is a different name for a mixed strategy.
C)is a sophisticated strategy used by a player.
D)is a sequence of moves by a player .

Question 45

A dominant strategy is:

A)always a winning strategy.
B)never part of a Nash equilibrium.
C)always part of a Nash equilibrium.
D)sometime part of a Nash equilibrium.

Question 46

Battle of the sexes is a:

A)game of chicken.
B)variant of the prisoner's dilemma game.
C)coordination game.
D)famous novel.

Question 47

The following mathematical properties should characterize the payoff functions:

A)discrete
B)continuous and quasi- concave
C)continuous and quasi- convex
D)bounded

Question 48

Which of the following is true?

A)All games have at least a dominated strategy.
B)All games have at least a dominant strategy.
C)Games may or may not end up having dominated or dominating strategies.
D)A Nash equilibrium in pure strategies requires at least a dominating strategy.

Question 49

A dominant strategy means that:

A)One player makes the best move given the move of the other player.
B)A player does not consider the moves available to the other player in making his decision.
C)It is the best response regardless of the strategy picked by the other player.
D)One player is aggressive while the other is passive.

Question 50

Cooperation is more likely to arise in repeated prisoner dilemma games:

A)when value the present gains highly.
B)when players are more patient.
C)when a one- time gain from cheating is large.
D)when players interact seldom.

Question 51

The best response function is:

A)the strategy that increases the payoff.
B)the strategy that best uses the available information.
C)the strategy that leads to the highest payoff regardless of what the other players do.
D)the strategy that maximizes one's payoff given the action of the other players.

Question 52

A Nash equilibrium occurs when:

A)each firm is doing the best it can given its opponents' actions.
B)there is no dominant firm in a market.
C)each firm chooses the strategy that maximizes its minimum gain.
D)a player can choose a strategy that is optimal regardless of its rivals' actions.

Question 53

If voting is costly yet it has no intrinsic value, voting in an election:

A)is a patriotic duty.
B)is a dominant strategy.
C)is a dominated strategy.
D)is neither a dominated strategy nor a dominant strategy.

Question 54

The equilibrium arrived at in the prisoner's dilemma game is a:

A)Nash equilibrium.
B)Bertrand equilibrium.
C)collusive equilibrium.
D)Cournot equilibrium.

Question 55

Which of the following types of games are likely to exhibit mixed strategy equilibria?

A)games of coordination
B)games of discoordination
C)any game that is properly formatted.
D)prisoner dilemma games.

Question 56

In the game of PUT (P)and KEEP (K)each child was given nine dollars and, if they chose to put it back, six dollars was added to the nine and the two children shared the total pot of money. What is the dominant strategy?

A)(K, K)
B)(P, K)
C)(K, P)
D)(P, P)

Question 57

The prisoner's dilemma:

A)is characterized by several Nash equilibria.
B)yields a Pareto- optimal equilibrium.
C)can be used to model a variety of economic settings.
D)does not have many real- life applications.

Question 58

A dominant strategy is one that:

A)combines pure and mixed strategies.
B)is chosen by the player regardless of the best response by the other player.
C)brings losses for the player.
D)restricts the freedom of choice.

Question 59

A coordination game:

A)covers most market situations.
B)cannot yield a Nash equilibrium.
C)usually has more than one equilibrium.
D)result in a final outcome that is uncertain.

Question 60

The Nash equilibrium in a prisoner's dilemma game:

A)has few real- life applications.
B)does not necessarily lead to jail time for the players.
C)is the set of the dominant strategies for all players.
D)is Pareto- optimal.

Question 61

A Nash equilibrium is:

A)individually rational.
B)collectively rational.
C)irrational.
D)both collectively and individually rational.

Question 62

The normal form of the game is:

A)the game's outcome in the simplest form.
B)the game's outcome in a matrix form.
C)a combination of equilibrium strategies that is most likely.
D)the game's outcome in a tree form.

Question 63

The outcome of a prisoner's dilemma game is:

A)sub- optimal, even the players are acting rational.
B)cooperative.
C)sub- optimal, since they are irrational.
D)optimal, since players are acting rational.

Question 64

Competitive equilibrium and Nash equilibrium:

A)are such that competitive equilibria are a subset of Nash equilibria.
B)are such that Nash equilibria are a subset of competitive equilibria.
C)are not related.
D)are inconsistent with each other.

Question 65

In the case of the team production, the best response functions:

A)do not intersect.
B)are positively sloped.
C)pass through the origin.
D)are negatively sloped.

Question 66

Provide one example for each of the following: 1)a game of plain substitutes, 2)a game of plain complements, 3)a game of discoordination

Question 67

Currently, there is an incumbent monopoly in the market. Next year, a potential entrant may enter. The incumbent needs to make a decision on whether or not it should spend $50 to lobby the government into passing legislation which places a lump- sum tax of $100 on the potential entrant if it enters. If the potential entrant stays out of the market it makes zero profit and the incumbent firm makes a monopoly profit, Profit_m>0, minus expenditures on lobbying if any ($50 or $0). If the potential entrant enters the market, it gets duopoly profit, Profit_d=$200, minus the tax if any, and the incumbent gets duopoly profit minus the lobbying costs if any.
a)Show the game in extensive form. What strategies will be played?
b)Suppose the tax on the potential entrant is $210 instead of $100. Repeat part A. How large must Profit_m be for the monopolist to want to lobby?

Question 68

A one shot game in a prisoner's dilemma game:

A)the prisoner has a chance of confessing before being shot.
B)implies there are no consequences to decisions outside the payoffs mentioned in the game.
C)allows players to punish opposing player for choosing to fink.
D)players repeatedly interact with each other.

Question 69

Why is the prisoner's dilemma touted as one of the most famous and equally important example of games in economics (but also in political science, biology, philosophy, etc.)?

Question 70

In the 1983 MGM movie Wargames, starring Matthew Broderick and Ally Sheedy, a supercomputer is programmed to simulate global thermonuclear war. Using game theory predict the dominant strategy determined by the computer.

Question 71

Firms Alba Inc. and Bute Inc. are duopolists selling firecrackers. Each of them has the option to charge high prices or low prices. Alba was longer in the business and its cost structure allows for higher profits. Also, Alba enjoys a strong reputation among customers and is able to charge higher prices. For the strategy combination (high, high)the payoff is (200,120), where the first position refers to Alba, and the second to Bute. Similarly, for (high, low)the payoff is (100,150), for (low, high)the payoff is (50, 0), while for (low, low)is (50, 25).
a)What is the dominant strategy for each firm?
b)Find the Nash equilibrium.
c)Can Alba induce Bute to charge a high price by threatening to charge a low price otherwise?

Question 72

Compare and contrast discrete and continuous strategy spaces.

Question 73

Consider the classic prisoner's dilemma problem where both players get a payoff of - 1 if they're silent, both get a payoff of - 6 if they fink, and if only one finks that person receives the payoff of zero and the one that remains silent gets a payoff of - 9. When the two prisoners are kept separated the Nash equilibrium is for both to think. Does the Nash equilibrium change if the prisoners are permitted to discuss their choice in advance but are still required to plead separately?

Question 74

Explain how an oligopoly can be thought of as a prisoner's dilemma game.

Question 75

In a game of plain substitutes:

A)there is a negative relationship between the players' payoffs.
B)there is no relationship between a player's strategy and the payoff of the other player.
C)there is a positive relationship between a player's strategy an the payoff of the other player.
D)there is a negative relationship between a player's strategy and the payoff of the other player.

Question 76

Present a real life example that can be understood better if modeled as a prisoner's dilemma.

Question 77

The prisoner's dilemma game:

A)leads to a Pareto efficient outcome.
B)refers to the interaction between police and criminals.
C)has few practical applications due to its simplicity.
D)is a game of dominant strategies.

Question 78

In the game of PUT (P)and KEEP (K)each child was given nine dollars and, if they chose to put it back, six dollars was added to the nine and the two children shared the total pot of money. Which exchange a has the highest joint payoff?

A)(P, K)
B)(P, P)
C)(K, K)
D)(K, P)

Question 79

By willingly eliminating some strategies from the strategy set ("burning some bridges"), a player:

A)can never create a strategic advantage.
B)is showing goodwill.
C)may create strategic advantage in certain cases.
D)is shooting himself in the foot since more options are better than fewer.

Question 80

Annie and Peter have two strategies each at their disposal: top and bottom. For the strategy combinations (top, top)and (top, bottom), the payoff is (0,100)in each case, where the first position refers to Annie, and the second to Peter. Similarly, for (bottom, top)the payoff is (- 20, - 50), while for (bottom, bottom)is (60, 60). Is there a Nash equilibrium in pure strategies? Is there a dominant strategy Nash equilibrium?