Question 1

Taking explicit account of a rival's expected response to a decision you are making is called:

Accepted Answer

A)  economic decision making. 
B)  monopolistic decision making. 
C)  strategic decision making. 
D)  competitive decision making. 
A)  economic decision making. 
B)  monopolistic decision making. 
C)  strategic decision making. 
D)  competitive decision making.

Question 2

A strategy that is preferred by an individual regardless of an opponent's decision is called a:

Accepted Answer

A)  Nash equilibrium. 
B)  Vickrey position. 
C)  framing strategy. 
D)  dominant strategy. 
A)  Nash equilibrium. 
B)  Vickrey position. 
C)  framing strategy. 
D)  dominant strategy.

Question 3

The rationality assumptions of game theory:

Accepted Answer

A)  always hold in the real world. 
B)  never hold in the real world. 
C)  sometimes hold in the real world. 
D)  make game theory irrelevant. 
A)  always hold in the real world. 
B)  never hold in the real world. 
C)  sometimes hold in the real world. 
D)  make game theory irrelevant.

Question 4

Game theory:

Accepted Answer

A)  is the best model for perfect competition. 
B)  replaces the standard supply/demand model. 
C)  is the best model for monopoly. 
D)  complements the standard supply/demand model. 
A)  is the best model for perfect competition. 
B)  replaces the standard supply/demand model. 
C)  is the best model for monopoly. 
D)  complements the standard supply/demand model.

Question 5

What is true about the following payoff matrix? $\begin{array} { | l | l | c | } 
\hline &  { \text { A: cooperate } } & \text { A: not cooperate } \
\hline \text { B: cooperate } & \text { A: } 2 , \text { B: } 2 & \text { A: } 5 , \text { B: } 5 \
\hline \text { B: do not cooperate } & \text { A: } 3 , \text { B: } 1 & \text { A: } 0 , \text { B: } 0 \
\hline
\end{array}$

Accepted Answer

A)  Only player A has a dominant strategy. 
B)  Only player B has a dominant strategy. 
C)  Both player A and player B have dominant strategies. 
D)  Neither player A nor player B has a dominant strategy. 
A)  Only player A has a dominant strategy. 
B)  Only player B has a dominant strategy. 
C)  Both player A and player B have dominant strategies. 
D)  Neither player A nor player B has a dominant strategy.

Question 6

The payoff matrix shows the outcome for only one player in a game situation.

Accepted Answer

A) True 
 B)False

Question 7

Backward induction will not lead to a determinate sequence of actions for:

Accepted Answer

A)  games with dominant strategies. 
B)  sequential games. 
C)  simultaneous move games. 
D)  mixed strategy games. 
A)  games with dominant strategies. 
B)  sequential games. 
C)  simultaneous move games. 
D)  mixed strategy games.

Question 8

What is true about the following payoff matrix? $\begin{array} { | l | l | c | } 
\hline & { \text { A: not cooperate } } & \text { A: cooperate } \
\hline \text { B: do not cooperate } & \text { A: } 2 , \text { B: } 2 & \text { A: } 1 , \text { B: } 3 \
\hline \text { B: cooperate } & \text { A: } 3 , \text { B: } 1 & \text { A: } 0 , B : 0 \
\hline
\end{array}$

Accepted Answer

A)  Only player A has a dominant strategy. 
B)  Only player B has a dominant strategy. 
C)  Both player A and player B have dominant strategies. 
D)  Neither player A nor player B has a dominant strategy. 
A)  Only player A has a dominant strategy. 
B)  Only player B has a dominant strategy. 
C)  Both player A and player B have dominant strategies. 
D)  Neither player A nor player B has a dominant strategy.

Question 9

Consider the following payoff matrix facing two criminals. $\begin{array} { | l | l | l | } 
\hline & { \text { A: Confess } } & \text { A: Not Confess } \
\hline \text { B: Confess } & \text { A: 20yrs, B: 20yrs } & \text { A: 50yrs, B: 2yrs } \
\hline \text { B: Not Confess } & \text { A: 2yrs, B: 50yrs } & \text { A: 10yrs, B: 10yrs } \
\hline
\end{array}$ Their options are to confess or not to confess. The payoffs represent the number of years each will spend in jail. The Nash equilibrium for the payoff matrix shown is:

Accepted Answer

A)  A: 20 years, B: 20 years. 
B)  A: 50 years, B: 2 years. 
C)  A: 2 years, B: 50 years. 
D)  A: 10 years, B: 10 years. 
A)  A: 20 years, B: 20 years. 
B)  A: 50 years, B: 2 years. 
C)  A: 2 years, B: 50 years. 
D)  A: 10 years, B: 10 years.

Question 10

Consider the following payoff matrix facing Harry and Sally when each chooses to go to the coffee shop listed. Both Harry and Sally would like to meet each other but are shy about asking the other out on a date.  $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\text { Haryy }$
$\begin{array}{|l|l|l|l|}
\hline & & {\text { Starbucks }} & \text { Dunkin Donuts } \
\hline \text { Sally } & \text { Starbucks } & \text { H: } 1, \mathrm{~S}: 1 & \text { H: } 0, \mathrm{~S}: 0 \
\hline & \text { Dunkin Donuts } & \text { H: } 0, \mathrm{~S}: 0 & \text { H: } 1, \mathrm{~S}: 1 \
\hline
\end{array}$   If Harry and Sally go to the coffee shop every day, what is Harry's best strategy?

Accepted Answer

A)  Harry has no best strategy. 
B)  Choose one shop to go to and keep going to it. 
C)  Randomly choose between the two shops and hope Sally will end up there too. 
D)  Stay at home. 
A)  Harry has no best strategy. 
B)  Choose one shop to go to and keep going to it. 
C)  Randomly choose between the two shops and hope Sally will end up there too. 
D)  Stay at home.

Question 11

Which of the following games has a first-mover advantage?

Accepted Answer

A)  Tic-tac-toe 
B)  Prisoner's dilemma 
C)  Rock, paper, scissors 
D)  Vickrey auction 
A)  Tic-tac-toe 
B)  Prisoner's dilemma 
C)  Rock, paper, scissors 
D)  Vickrey auction

Question 12

Informal game theory:

Accepted Answer

A)  relies on deductive logic. 
B)  shows how the Nash equilibrium is reached. 
C)  assumes people calculate their optimal strategy. 
D)  considers how people actually think and behave. 
A)  relies on deductive logic. 
B)  shows how the Nash equilibrium is reached. 
C)  assumes people calculate their optimal strategy. 
D)  considers how people actually think and behave.

Question 13

The endowment effect in behavioral economics refers to how people:

Accepted Answer

A)  are averse losses in a game of chance such as poker. 
B)  prefer stock market gains over losses. 
C)  value things more if they own them. 
D)  avoid the loss of something of high value. 
A)  are averse losses in a game of chance such as poker. 
B)  prefer stock market gains over losses. 
C)  value things more if they own them. 
D)  avoid the loss of something of high value.

Question 14

If individuals can credibly cooperate and split the gains, which payoff is the most likely? $\begin{array} { | l | l | l | } 
\hline & \text { A: Not Cheat } & \text { A: Cheat } \
\hline \text { B: Not Cheat } & \text { A: } 1 , \text { B: } 50 & \text { A: } 1 , \text { B: } 1 \
\hline \text { B: Cheat } & \text { A: } 2 , \text { B: } 1 & \text { A: } 5 , \text { B: } 5 \
\hline
\end{array}$

Accepted Answer

A)  1, 11 
B)  1, 1 
C)  2, 1 
D)  5, 5 
A)  1, 11 
B)  1, 1 
C)  2, 1 
D)  5, 5

Question 15

Optimal rollback strategies are most difficult in:

Accepted Answer

A)  sequential games. 
B)  simultaneous games. 
C)  zero sum games. 
D)  repeated games. 
A)  sequential games. 
B)  simultaneous games. 
C)  zero sum games. 
D)  repeated games.

Question 16

Behavioral economics helps explain:

Accepted Answer

A)  why people are rational. 
B)  why people are selfish. 
C)  why being selfish is rational. 
D)  the degree to which people are altruistic. 
A)  why people are rational. 
B)  why people are selfish. 
C)  why being selfish is rational. 
D)  the degree to which people are altruistic.

Question 17

When suspects are interviewed in different rooms, they do not know what the other suspects are going to do and hence seek the best deal for themselves. This illustrates:

Accepted Answer

A)  that criminals are irrational. 
B)  the idea of a cooperative game. 
C)  the idea of a noncooperative game. 
D)  that the police are not taking into account the suspects' rights. 
A)  that criminals are irrational. 
B)  the idea of a cooperative game. 
C)  the idea of a noncooperative game. 
D)  that the police are not taking into account the suspects' rights.

Question 18

In a Vickrey auction, a bidder's strategy:

Accepted Answer

A)  is to bid what he or she would be willing to pay. 
B)  is to bid just slightly more than the next bidder. 
C)  is to bid just below the next highest bidder. 
D)  requires the bidder to understand game theory to bid properly. 
A)  is to bid what he or she would be willing to pay. 
B)  is to bid just slightly more than the next bidder. 
C)  is to bid just below the next highest bidder. 
D)  requires the bidder to understand game theory to bid properly.

Question 19

In a sequential game:

Accepted Answer

A)  the first player always has the advantage. 
B)  the second player always has the advantage. 
C)  neither player ever has any advantage. 
D)  either player could have the advantage depending on the game. 
A)  the first player always has the advantage. 
B)  the second player always has the advantage. 
C)  neither player ever has any advantage. 
D)  either player could have the advantage depending on the game.

Question 20

What is true about the following payoff matrix? $\begin{array} { | l | l | c | } 
\hline &  { \text { A: not cooperate } } & \text { A: cooperate } \
\hline \text { B: do not cooperate } & \text { A: } 2 , \mathrm {~B} : 2 & \text { A: } 1 , \text { B: } 3 \
\hline \text { B: cooperate } & \text { A: } 3 , \mathrm {~B} : 1 & \text { A: } 0 , \text { B: } 0 \
\hline
\end{array}$

Accepted Answer

A)  Players cannot jointly do better by cooperating. 
B)  Players cannot escape the 0-0 payoff. 
C)  Player A is better off lying that he will not cooperate and then cooperate. 
D)  Player B is better off lying that she will not cooperate and then cooperate. 
A)  Players cannot jointly do better by cooperating. 
B)  Players cannot escape the 0-0 payoff. 
C)  Player A is better off lying that he will not cooperate and then cooperate. 
D)  Player B is better off lying that she will not cooperate and then cooperate.

Exam 20: Game Theory, Strategic Decision Making, and Behavioral Economics

Taking explicit account of a rival's expected response to a decision you are making is called:

A strategy that is preferred by an individual regardless of an opponent's decision is called a:

The rationality assumptions of game theory:

Game theory:

What is true about the following payoff matrix? A: cooperate A: not cooperate B: cooperate A: 2, B: 2 A: 5, B: 5 B: do not cooperate A: 3, B: 1 A: 0, B: 0

The payoff matrix shows the outcome for only one player in a game situation.

Backward induction will not lead to a determinate sequence of actions for:

What is true about the following payoff matrix? A: not cooperate A: cooperate B: do not cooperate A: 2, B: 2 A: 1, B: 3 B: cooperate A: 3, B: 1 A: 0,B:0

Which of the following games has a first-mover advantage?

Informal game theory:

The endowment effect in behavioral economics refers to how people:

If individuals can credibly cooperate and split the gains, which payoff is the most likely? A: Not Cheat A: Cheat B: Not Cheat A: 1, B: 50 A: 1, B: 1 B: Cheat A: 2, B: 1 A: 5, B: 5

Optimal rollback strategies are most difficult in:

Behavioral economics helps explain:

When suspects are interviewed in different rooms, they do not know what the other suspects are going to do and hence seek the best deal for themselves. This illustrates:

In a Vickrey auction, a bidder's strategy:

In a sequential game:

What is true about the following payoff matrix? A: not cooperate A: cooperate B: do not cooperate A: 2,:2 A: 1, B: 3 B: cooperate A: 3,:1 A: 0, B: 0

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Describing Supply and Demand: Elasticities

Taxation and Government Intervention

Market Failure Versus Government Failure

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

Production and Cost Analysis I

Production and Cost Analysis II

Perfect Competition

Monopoly and Monopolistic Competition

Oligopoly and Antitrust Policy

Real-World Competition and Technology

Work and the Labor Market

Who Gets What the Distribution of Income

The Logic of Individual Choice: the Foundation of Supply and Demand

Thinking Like a Modern Economist

Behavioral Economics and Modern Economic Policy

Microeconomic Policy, Economic Reasoning, and Beyond

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