Exam 18: Game Theory and Strategic Choices

Agreements to cooperate among players in a game are:

Summarize the four steps for making good strategic decisions.

When a player's best response is to take a different (but complementary) action to the other player, then both participants are playing _____ game.

(Figure: Payoff Matrix for the United States and Canada) Use Figure: Payoff Matrix for the United States and Canada. Suppose that the United States and Canada both produce quinoa, and each country can earn more profit if output is limited and the price of quinoa is high. The BEST response for Canada is: ​

Two computer retailers, Best Buy and Circuit City, are considering entering a small town. Best Buy is the larger and more profitable of the two rivals. Each firm can either enter the market or not. The table shows the payoff matrix. Profits in each cell of the payoff matrix are given as (Best Buy's profits, Circuit City's profits). Are there any dominant strategies in the game? If this game is played only once, and each firm decides whether to enter the market independently, what is the Nash equilibrium of this game? Explain your answers. ​ ​

Which of the following situations do players face in the last round of a finitely repeated game?

In an indefinitely repeated game, the players face:

Use the table, with data for workers and firms, to answer the question. The payoff cells are labeled A, B, C, and D. Table: Spending and Producing Firms produce and hire a lot. Firms cut back on production and hiring. Workers spend a lot. A. Workers spend a lot, and firms hire a lot. B. Workers overspend, and firms underproduce. Workers cut back on spending. C. Workers underspend, and firms overproduce. D. Workers spend little, and firms sell little. There are multiple equilibria in the table. The desired outcome is cell A, but there is an equal chance of an equilibrium outcome in cell D. Which of the following is an appropriate approach to resolving the problem through communication, so that the outcome in cell A is likely?

How can the Prisoner's Dilemma illustrate the tragedy of the commons?

(Figure: Payoff Matrix for Blue Bottle and Opal Ocean) Use Figure: Payoff Matrix for Blue Bottle and Opal Ocean. The figure shows the potential profits of two producers of bottled water. Each has two strategies available to it: a high price and a low price. Suppose Blue Bottle charges a high price and Opal Ocean does the same. In the next period, Blue Bottle charges a low price and Opal Ocean incurs a loss. If Opal Ocean responds with a Grim trigger strategy, it will: ​

Suppose that Big & Tall and Short & Sweet are two clothing manufacturers in a duopoly and that each chooses independently whether to advertise or not advertise. If neither advertises, each gets $100 million in profit; if both advertise, their profits are $50 million each; and if one advertises, while the other does not, the advertiser gets $150 million in profit, and the other gets $20 million in profit. If the firms collude to maximize joint profits:

Connor's Corner Gas and Steven's Super Fuel are the only two providers of gasoline in their town. Connor and Steven decide to cooperate. Later, Connor summarizes his pricing strategy as, "I'll defect because, regardless of what Steven does, defecting gives me the best payoff." This is an example of:

There are only two barber shops, Buzz Cuts and Great Clips, in a small town. Each firm can set either a high price or a low price; customers view these two firms as nearly perfect substitutes. The table shows the payoff matrix. If this game is played only once, and each firm sets its price independently, what is the Nash equilibrium? Is this game a prisoners' dilemma? Explain your answers. ​

When looking at a payoff table, what does it mean to "Put yourself in someone else's shoes"?

A strategic interaction that occurs only once is called a _____ game.

What is a game tree?

A second-mover advantage is the:

Use the table, with data for Bishan and Amara, to answer the question. If Bishan and Amara cooperate, Bishan would earn _____ more and Amara would earn _____ more than they would without cooperation. Table: Bishan's and Amara's Lawn Mowing Services Amara's price =\ 30 Amara's price =\ 45 Bishan's price = Bishan's profit =\ 700 Amara's profit =\ 800 Bishan's profit =\ 100 Amara's profit =\ 1,500 Bishan's price = Bishan's profit =\ 1,400 Bishan's profit =\ 1,000 \ 50 Amara's profit =\ 80 Amara's profit =\ 1,200

Which of the following formats shows how a game plays out over time, with the first move forming the trunk, each subsequent choice creating a new branch, and the final leaves showing all possible outcomes?

The outcome of a strategic interaction is called a: