Exam 11: Game Theory and Strategic Behavior

In game theory, a choice that is optimal for a firm no matter what its competitors do is referred to as

Which of the following defines a zero-sum game?

If a player's optimal strategy depends on the behavior of rival players, then that player must have a dominant strategy.

In repeated games, a strategy that involves attacking players that attack you and cooperating with players that cooperate with you is a

A market has only two sellers. They are both trying to decide on a pricing strategy. If both firms charge a high price, then each firm will experience a 5 percent increase in profits. If both firms charge a low price, then each firm will experience a 3 percent increase in profits. If Firm 1 charges a high price and Firm 2 charges a low price, then Firm 1 will experience a 1 percent increase in profits and Firm 2 will experience a 6 percent increase in profits. If Firm 2 charges a high price and Firm 1 charges a low price, then Firm 2 will experience a 2 percent increase in profits and Firm 1 will experience a 7 percent increase in profits. (i) Construct a payoff matrix for this game. (ii) Determine whether each firm has a dominant strategy and, if it does, identify the strategy. (iii) Determine the optimal strategy for each firm. (iv) Determine the Nash equilibrium. (v) Is this a prisoners' dilemma? How do you know?

Doing to your opponent what he has just done to you is known as

In game theory, a dominant strategy refers to a choice

Which of the following is a nonzero-sum game?

A rational firm will select a dominant strategy, if one exists.

An oligopolist may engage in short-run behavior that results in lower profits if

Which of the following is a zero-sum game?

Strategic behavior recognizes that, under oligopoly, one firm's decision does not affect other firms.

When two children fight over a piece of cake, it is an example of a zero-sum game.

Which of the following is an example of strategic behavior?

The prisoners' dilemma is a situation where each player chooses a dominant strategy but each could do better if both chose different strategies.

A defining characteristic of oligopoly is that all firms in an industry typically consider the reactions of competitors when they formulate strategy.

In the secondary markets, stock option investors make money from the loss of other stock option investors. In fact, the losses of one investor become the return to the other. Would you consider this type of option investment as

A game that involves multiple moves in a series of identical situations is called a

If the payoffs in a game are measured in terms of market share, then duopolists are engaged in a nonzero-sum game.

Advertising is an example of