Exam 13: Pure Strategies With Uncertain Payoffs

-Consider the entry advertising game depicted in Figure 13.8. Payoffs are in thousands of dollars. Suppose that there is a 70 percent probability that Goliath will advertize on the radio and an 30 percent probability that Goliath will advertise in newspapers regardless of the advertizing strategy adopted by David. If David is risk neutral, what is the subgame perfect equilibrium for this game?

188 -Consider the pricing game depicted in Figure 13.6. Payoffs are in millions of dollars. Suppose that firm A believes that regardless of its strategy, there is a 15 percent chance that firm B will charge a high price and an 85 percent chance that firm B will charge a low price. What is the riskier strategy profile for firm A?

188 -Consider the pricing game depicted in Figure 13.6. Payoffs are in millions of dollars. Suppose that if firm A charges a high price there is a 15 percent chance that firm B will charge a high price and an 85 percent chance that firm B will charge a low price. Suppose that if firm A charges a low price there is an 85 percent chance that firm B will charge a high price and a 15 percent chance that firm B will charge a low price. If firm A is risk neutral, what is the subgame perfect equilibrium for this game?

Risk aversion can best be explained by:

Uncertainty can be introduced into games by:

-Consider Figure 13.5, which depicts the risk-return indifference curves for three investors. If the projects are mutually exclusive, which investor is the most risk averse? I. 1 II. 2 III. 3 Which of the following is correct?

-Consider Figure 13.5, which depicts the risk-return indifference curves for three investors. If the projects are mutually exclusive, for which project is investor 1 indifferent between accepting and rejecting?

-Consider the game depicted in Figure 13.2 in which, which summarizes the payoffs from alternative strategy profiles from a pessimistic state of nature. The Nash equilibrium strategy profile is:

-Consider the entry advertising game depicted in Figure 13.8. Payoffs are in thousands of dollars. If David advertizes on TV, there is a 70 percent probability that Goliath will advertize on the radio and an 30 percent probability that Goliath will advertize in newspapers. If David advertizes in magazines, there is a 50 percent probability that Goliath will advertize on the radio or in newspapers. If David is risk neutral, what is the subgame perfect equilibrium for this game?

-Consider Figure 13.5, which depicts the risk-return indifference curves for threeinvestors. If the projects are mutually exclusive, which is the most preferred for investor 1?

A risk neutral individual tends to exhibit _____ marginal utility of money.

Suppose that an individual's utility of money function is U = 5M ². This individual can best be described as risk:

Gog is offered the following wager by Magog. For a payment of $10, Gog can blindfolded draw a single marble from an urn containing ten marbles. Eight marbles are green and two are red. If Gog selects the green marble, he wins $500. If he draws a red marble, he loses $125. The expected value of this gamble is:

A fair gamble is one in which:

-Consider the entry advertising game depicted in Figure 13.8. Payoffs are in thousands of dollars. Suppose that there is a 70 percent probability that Goliath will advertize on the radio and an 30 percent probability that Goliath will advertize in newspapers regardless of the advertizing strategy adopted by David. What is the riskier strategy profile for David?

s -Consider Figure 13.1, which represents an optimistic state of nature and Figure 13.2, which represents a pessimistic state of nature. Suppose that there is a 10 percentprobability of an optimistic state of nature and a 90 percent probability of a pessimistic state of nature will prevail. The expected payoffs to both players in this game are:

Gog is offered the following wager by Magog. For a payment of $10, Gog can blindfolded draw a single marble from an urn containing ten marbles. Eight marbles are green and two are red. If Gog selects the green marble, he wins $500. If he draws a red marble, he loses $125. Which of the following statements is correct?

Suppose that a raffle ticket costs $5 and there is a 99 percent chance of not winning. For this raffle to be considered a fair gamble, the winning prize must be worth:

-Consider Figure 13.5, which depicts the risk-return indifference curves for three investors. If the projects are mutually exclusive, for which project is investor 3 indifferent between accepting and rejecting?

-Consider Figure 13.5, which depicts the risk-return indifference curves for three investors. If the projects are mutually exclusive, which is the most preferred for investor 2?