Question 1

The prisoner's dilemma
A) is a cooperative game.
B) is an example of how minimizing your losses can lead to an inferior outcome for all players.
C) is applicable to only economic situations.
D) explains how maximizing individual welfare leads to maximization of social welfare.

Accepted Answer

The prisoner's dilemma illustrates how rational individuals, seeking to minimize their losses or maximize their personal gain without cooperative strategies, can end up in a situation where they all fare worse than if they had cooperated, leading to an inferior outcome for all players.

Question 2

In the prisoner's dilemma, if the prisoners could collude
A) both prisoners would be better off confessing.
B) the best outcome for both prisoners occurs if one confesses and the other does not.
C) both prisoners would be better off not confessing.
D) their prison sentences would be maximized.

Accepted Answer

In the prisoner's dilemma, if the prisoners could collude, they would both be better off not confessing. This is because by not confessing, they both receive a lesser sentence than if one or both decide to confess, assuming the other does not. This outcome relies on mutual trust and cooperation.

Question 3

An example of a noncooperative game is
A) a cartel.
B) a price-fixing model.
C) a joint-profit maximization model.
D) the prisoner's dilemma.

Accepted Answer

The prisoner's dilemma is a classic example of a noncooperative game, where individuals cannot make enforceable agreements and must make decisions without knowing the other's choice, often leading to suboptimal outcomes for both.

Question 4

The prisoner's dilemma has all of these characteristics EXCEPT
A) it is a noncooperative game.
B) there is no communication between players.
C) there will be inferior results for both players.
D) it is a sequential game.

Accepted Answer

The prisoner's dilemma is a simultaneous game, not a sequential game. In a sequential game, players make their moves one after another, whereas in the prisoner's dilemma, players make their decisions without knowing the other's choice, typically at the same time.

Question 5

The best-response method assumes that each player will
A) always choose the action that is the cheapest to implement.
B) choose his or her best payoff, taking into account the actions of all other players.
C) choose his or her best payoff, taking into account past actions and outcomes.
D) cooperate with all the other players to maximize their joint outcome.

Accepted Answer

The best-response method in game theory assumes that each player will choose their best payoff while considering the actions of all other players. This method is used to predict outcomes in strategic interactions where each player's decision depends on the choices of others.

Question 6

Both Lowes and Home Depot must choose how much to advertise. The payoff of the advertising choice of each firm is dependent on the advertising choice of the other. This situation is an example of
A) a competitive market structure.
B) a cartel.
C) the prisoner's dilemma.
D) a cooperative game.

Accepted Answer

This situation exemplifies the prisoner's dilemma, where each firm's decision on advertising (to advertise or not) affects not only its own payoff but also the payoff of the other firm, leading to a strategic decision-making scenario where the optimal choice for one depends on the choice of the other.

Question 7

The "dilemma" in the prisoner's dilemma is that
A) one of the players cannot get the best outcome.
B) both players would be better off by cooperating, but not cooperating is a dominant strategy.
C) both players would be better off by not cooperating, but cooperating is a dominant strategy.
D) the player with first-mover advantage always gets the better outcome.

Accepted Answer

The dilemma in the prisoner's dilemma arises because while both players would collectively benefit from cooperation, the dominant strategy for each, when acting independently and without communication, is to defect (not cooperate), leading to a worse outcome for both.

Question 8

In which situation can a prisoner's dilemma outcome MOST likely be avoided?
A) if the game is repeated over and over under the same conditions
B) if the players involved choose not to cooperate with one another
C) if each player plays his or her best-response strategy
D) if the game is only played once with no opportunity for retaliation

Accepted Answer

When a prisoner's dilemma game is repeated over time, players have the opportunity to establish trust and learn to cooperate for mutual benefit, thus potentially avoiding the suboptimal outcome that typically characterizes a one-shot prisoner's dilemma.

Question 9

A prisoner's dilemma describes a Nash equilibrium where
A) the payoffs are the lowest for both players.
B) an outcome exists that is better for both players.
C) one player achieves the highest payoff, while the other achieves the lowest payoff.
D) there is no dominant strategy for either player.

Accepted Answer

In a prisoner's dilemma, although the Nash equilibrium results in both players making decisions that lead to suboptimal outcomes for each, there indeed exists an outcome that would be better for both players if they could achieve cooperation.

Question 10

(Table) Based on the game table, where Delta's payoff is listed first, what is the Nash equilibrium pricing strategy?

A) Delta = price high; JetBlue = price high
B) Delta = price high; JetBlue = price low
C) Delta = price low; JetBlue = price high
D) Delta = price low; JetBlue = price low

Accepted Answer

The answer of (Table) Based on the game table, where...

Question 11

(Table) Based on the game table, where Delta's payoff is listed first, does the Nash equilibrium represent a prisoner's dilemma? Why or why not?
$\begin{array}{cccc} 
& && {\text { JetBlue }} \
& & \text { High } && \text { Low } \
\text { Delta } & \text { High } & 700,100 && 600,200 \
& \text { Low } & 550,70 && 500,80
\end{array}$
A) Yes, it does because there is a better outcome for both firms.
B) Yes, it does because one firm is unable to achieve the highest payoff.
C) No, it does not because both firms are earning the highest payoff possible.
D) No, it does not because there is no solution which is better for both players.

Accepted Answer

The Nash equilibrium does not represent a prisoner's dilemma because in a prisoner's dilemma, both players have a dominant strategy that leads to a worse outcome for both compared to if they had chosen a different strategy. In this table, choosing "High" for both firms leads to the highest combined payoff (800), indicating no better mutual outcome exists, thus not fitting the criteria of a prisoner's dilemma.

Question 12

Which game does NOT describe a prisoner's dilemma outcome?
A) cartel members attempting to increase profits by cheating on their production quotas
B) rival department stores agreeing to accept each other's coupons and advertised specials
C) competing electronics stores attempting to undercut each other's prices
D) a game of chicken in which one player backs down while the other player does not

Accepted Answer

In a prisoner's dilemma, two parties face a situation where they can either cooperate or betray each other, with the outcome being that mutual cooperation is better than mutual betrayal, but betrayal offers the highest individual reward if the other cooperates. Choices A, B, and C all involve scenarios where parties might benefit from betraying a mutual agreement for personal gain, fitting the prisoner's dilemma framework. Choice D, the game of chicken, differs because it involves a direct confrontation where backing down (cooperating) while the other does not (betraying) leads to a loss, which does not align with the mutual benefit aspect of the prisoner's dilemma.

Question 13

If a prisoner's dilemma game is repeated daily, such that two rival stores choose a price simultaneously each morning for an extended number of days, which outcome can happen?
A) The Nash equilibrium will continue to be played throughout the game.
B) The Nash equilibrium will continue to be played only until one firm engages a trigger strategy against the other.
C) There will more likely be cooperation to achieve an outcome different from the Nash equilibrium that is better for both firms.
D) An outcome different from the Nash equilibrium would occur; however, only one firm will be better off.

Accepted Answer

In repeated games like the prisoner's dilemma, firms can learn from previous interactions and may cooperate to achieve outcomes better for both, diverging from the Nash equilibrium to maximize their long-term benefits. This is because the threat of future retaliation for non-cooperative behavior can encourage cooperation.

Question 14

The notion that individuals and firms are compelled to retaliate or punish others for engaging in noncooperative actions, but leaving the door open for future reconciliation, is BEST referred to as a(n) _____ strategy.
A) tit-for-tat
B) grim
C) trembling hand
D) irrational

Accepted Answer

The tit-for-tat strategy involves responding to an opponent's action with similar action, thus retaliating against noncooperative actions but also being open to cooperation if the opponent's behavior changes. This strategy is known for its effectiveness in repeated games or interactions, promoting cooperation by reciprocating both cooperative and non-cooperative moves.

Question 15

Rice-to-Riches and Rice Pudding Palace are two shops of similar size that sell rice pudding desserts. Both shops frequently offer "Buy One, Get One Free" specials in an attempt to steal the other store's customers. But because both shops offer the same deal, they both end up earning less profit. This type of situation is BEST described as a _____ game.
A) prisoner's dilemma
B) chicken
C) leadership
D) sequential

Accepted Answer

The situation described is best characterized as a prisoner's dilemma because both shops are in a scenario where, despite having a strategy that could potentially benefit them both (not engaging in constant promotions), they opt for a competitive approach (offering "Buy One, Get One Free" deals) that ultimately leaves them both worse off. This mirrors the prisoner's dilemma in game theory, where two parties choose strategies that lead to suboptimal outcomes for both due to a lack of cooperation.

Question 16

Which of these is a benefit that results from a prisoner's dilemma outcome?
A) Charging high prices leads to more profits.
B) Charging high prices leads to more customers.
C) Charging low prices leads to fewer customers.
D) Charging low prices leads to more customers.

Accepted Answer

In a prisoner's dilemma, both parties choosing to charge low prices can lead to more customers, as lower prices are more attractive to consumers, even though it might not maximize profits for the businesses involved.

Question 17

Regardless of what Penny (a criminal suspect) does, if Buck (an accomplice) can minimize his jail sentence by informing on Penny, informing would be considered a _____ strategy.
A) zero-sum
B) tit-for-tat
C) dominant
D) trembling hand

Accepted Answer

A dominant strategy is one that is the best choice for a player, regardless of what the other player does. In this case, if Buck can minimize his jail sentence by informing on Penny regardless of Penny's actions, informing is Buck's dominant strategy.

Question 18

A strategy in which a firm takes the same action that another firm did in the last period is a _____ strategy.
A) tit-for-tat
B) trigger
C) duopoly
D) dominant

Accepted Answer

A tit-for-tat strategy involves responding to a competitor's action with the same action. If a competitor cooperated in the last period, the firm cooperates in this period; if the competitor defected, the firm defects as well.

Question 19

Which repeated game strategy does the MOST to reward cooperation and punish defection, while producing the greatest efficiency?
A) grim trigger
B) trembling hand trigger
C) tit-for-tat
D) predatory pricing

Accepted Answer

Tit-for-tat is a strategy in repeated games that rewards cooperation and punishes defection effectively. It starts with cooperation and then mimics the opponent's previous move. This strategy encourages cooperation, as defection is immediately met with defection, but cooperation is also immediately rewarded, leading to efficient outcomes.

Question 20

_____ is a noncooperative game in which players cannot communicate or collaborate in making their decision about whether to confess.
A) Tit-for-tat
B) The prisoner's dilemma
C) Grim trigger
D) Trembling hand trigger

Accepted Answer

The prisoner's dilemma is a standard example of a game analyzed in game theory that shows why two completely rational individuals might not cooperate, even if it appears that it is in their best interest to do so. It is a noncooperative game where the key element is the inability of players to communicate or collaborate on their decisions, typically illustrated by two prisoners deciding whether to confess to a crime without being able to communicate with each other.

Quiz 10: Monopolistic Competition, Oligopoly, and Game Theory

The prisoner's dilemma

In the prisoner's dilemma, if the prisoners could collude

An example of a noncooperative game is

The prisoner's dilemma has all of these characteristics EXCEPT

The best-response method assumes that each player will

Both Lowes and Home Depot must choose how much to advertise. The payoff of the advertising choice of each firm is dependent on the advertising choice of the other. This situation is an example of

The "dilemma" in the prisoner's dilemma is that

In which situation can a prisoner's dilemma outcome MOST likely be avoided?

A prisoner's dilemma describes a Nash equilibrium where

(Table) Based on the game table, where Delta's payoff is listed first, what is the Nash equilibrium pricing strategy?

Which game does NOT describe a prisoner's dilemma outcome?

If a prisoner's dilemma game is repeated daily, such that two rival stores choose a price simultaneously each morning for an extended number of days, which outcome can happen?

The notion that individuals and firms are compelled to retaliate or punish others for engaging in noncooperative actions, but leaving the door open for future reconciliation, is BEST referred to as a(n) _____ strategy.

Which of these is a benefit that results from a prisoner's dilemma outcome?

Regardless of what Penny (a criminal suspect) does, if Buck (an accomplice) can minimize his jail sentence by informing on Penny, informing would be considered a _____ strategy.

A strategy in which a firm takes the same action that another firm did in the last period is a _____ strategy.

Which repeated game strategy does the MOST to reward cooperation and punish defection, while producing the greatest efficiency?

_____ is a noncooperative game in which players cannot communicate or collaborate in making their decision about whether to confess.