Question 1

-Consider the Spence Education Game depicted in Figure 16.4. In the figure, all payoffs are in thousands of dollars per month. Suppose 30 percent of workers are low- productivity (LP) workers and 70 percent are high-productivity (HP) workers. Using pre- employment testing, the firm has determined that there is a 60 percent probability of hiring a high-school (HS) graduate who is also a high-productivity worker and a 75 percent probability of hiring a college (C) graduate who is a high-productivity worker. What is the firm's conditional expected payoff from hiring a college graduate?

Accepted Answer

A)  About $6,000 
B)  About $5,760 
C)  About $4,370 
D)  About $3,580 
E)  About $4,000.

Question 2

-Refer to Figure 16.1, which represents a static game in extensive format. The following decision nodes constitute an invalid information set:

Accepted Answer

A)  D1 and D2. 
B)  D1 and D3. 
C)  D2 and D3. 
D)  D1, D2, and D3. 
E)  Answers a and b are correct.

Question 3

-Consider the static oil-drilling game depicted in Figure 16.2. The payoffs to both players from Nash equilibrium strategy profile for this game are:

Accepted Answer

A)  (52, 52). 
B)  (12, 70) 
C)  (70, 12) 
D)  (24, 24) 
E)  Cannot be determined without additional information about the players' positions in the game tree.

Question 4

Screening occurs when a player:

Accepted Answer

A)  Transmits a credible and unreproducible signal to an uninformed player. 
B)  Attempts to sort rivals according to certain characteristics. 
C)  Attempts to sort rivals using different credible threats. 
D)  Attempts to obtain a better payoffs by committing to a different strategy for each rival. 
E)  Makes a decision using a familiar frame of reference.

Question 5

-Refer to Figure 16.1, which represents a static game in extensive format. The Nash equilibrium strategy profile for this game is:

Accepted Answer

A)  {Up, Up}. 
B)  {Down, Down}. 
C)  {Up, Down}. 
D)  {Down, Up}.

Question 6

-Consider the Spence Education Game depicted in Figure 16.3. In the figure, all payoffs are in thousands of dollars per month. Suppose that 70 percent of all workers are low- productivity (LP) workers and 30 percent are high-productivity (HP) workers. Using pre- employment testing, the firm has determined that there is a 60 percent probability of hiring a high-school (HS) graduate who is also a high-productivity worker and a 75 percent probability of hiring a college (C) graduate who is a high-productivity worker. What is the firm's conditional expected payoff from hiring a high school graduate?

Accepted Answer

A)  About $1,560 
B)  About $1,960 
C)  About $2,810 
D)  About $3,100 
E)  None of the above.

Question 7

-Consider the Spence Education Game depicted in Figure 16.4. In the figure, all payoffs are in thousands of dollars per month. Suppose that Nature moves first and determines that there is a 30 percent of workers are low-productivity (LP) workers and 70 percent are high-productivity (HP) workers. The firm has determined that there is a 60 percent probability of hiring a high-school (HS) graduate who is also a high-productivity worker and a 75 percent probability of hiring a college (C) graduate who is a high-productivity worker. What is the optimal hiring strategy of a risk-neutral firm?

Accepted Answer

A)  Hire only college graduates. 
B)  Hire college graduates 70 percent of the time. 
C)  Hire only high-school graduates. 
D)  Hire high-school graduates 30 percent of the time. 
E)  Hire high-school graduates 50 percent of the time.

Question 8

Perfect recall:

Accepted Answer

A)  Is typical of one-time, static games with incomplete information. 
B)  Is typical of repeated, static games with complete information. 
C)  Is characteristic of invalid information sets. 
D)  Is characteristic of dynamic games with imperfect information. 
E)  Answers b and d are correct.

Question 9

Self-selection occurs when players:

Accepted Answer

A)  Transmit a credible and unreproducible signals to an uninformed rivals. 
B)  Have do not have total recall. 
C)  Move first to limit a rivals strategy options. 
D)  Have an incentive to cooperate with rivals of similar characteristics. 
E)  Voluntarily sort themselves into different groups have certain characteristics.

Question 10

-Refer to Figure 16.1, which represents a static game in extensive format. The following decision nodes constitute a valid information set:

Accepted Answer

A)  D1 and D2. 
B)  D1 and D3. 
C)  D2 and D3. 
D)  D1, D2, and D3. 
E)  Answers a and b are correct.

Question 11

-Consider the Spence Education Game depicted in Figure 16.4. In the figure, all payoffs are in thousands of dollars per month. Suppose that 30 percent of workers are low- productivity (LP) workers and 70 percent are high-productivity (HP) workers. Using pre- employment testing, the firm has determined that there is a 60 percent probability of hiring a high-school (HS) graduate who is also a high-productivity worker and a 75 percent probability of hiring a college (C) graduate who is a high-productivity worker. What is the probability that the firm will hire a high-productivity, college graduate?

Accepted Answer

A)  72 percent 
B)  76 percent 
C)  88 percent 
D)  92 percent 
E)  None of the above.

Question 12

-Consider the Spence Education Game depicted in Figure 16.3. In the figure, all payoffs are in thousands of dollars per month. Suppose that 70 percent of all workers are low- productivity (LP) workers and 30 percent are high-productivity (HP) workers. Using pre- employment testing, the firm has determined that there is a 60 percent probability of hiring a high-school (HS) graduate who is also a high-productivity worker and a 75 percent probability of hiring a college (C) graduate who is a high-productivity worker. What is the probability that the firm will hire a high-productivity worker who is a high school graduate?

Accepted Answer

A)  23 percent 
B)  39 percent 
C)  47 percent 
D)  56 percent 
E)  None of the above.

Question 13

-Consider the static oil-drilling game depicted in Figure 16.2. This game is an example of :

Accepted Answer

A)  A multistage game. 
B)  A Harsanyi transformation. 
C)  Nash bargaining. 
D)  Prisoner's dilemma. 
E)  Screening.

Question 14

A player who cannot distinguish among decisions nodes at a stage of a dynamic games is:

Accepted Answer

A)  Within an information partition. 
B)  Within an invalid information set. 
C)  Within a valid information set. 
D)  Is playing an improper subgame. 
E)  Answers c and d are correct.

Exam 16: Dynamic Games With Incomplete Information