Question 1

A prisoners' dilemma is a game with all of the following characteristics except one. Which one is not present in a prisoners' dilemma?

Accepted Answer

In a prisoners' dilemma, players do not cooperate in arriving at their strategies. Instead, they independently choose their strategies, often leading to a suboptimal outcome for both due to the incentive to defect from cooperation.

Question 2

Which of the following legal restrictions, if enforced effectively, would be likely to solve a prisoners' dilemma type of problem for the firms involved?

Accepted Answer

Prohibiting advertising can reduce competitive pressures, allowing firms to maintain higher prices without fear of losing market share, thus solving the prisoners' dilemma by reducing incentives to undercut each other.

Question 3

Until recently, medical doctors and lawyers have been prohibited from engaging in competitive advertising. If the prisoners' dilemma applies to this situation, then the presence of this restriction would be likely to

Accepted Answer

The prisoners' dilemma suggests that when individuals (or firms) cannot cooperate (e.g., through agreements not to advertise), they end up in a situation where their individual rational strategies lead to a worse outcome for each than if they could bind themselves to a cooperative solution. In this context, the prohibition on competitive advertising acts as a form of enforced cooperation, preventing professionals from engaging in potentially costly advertising wars. This would likely increase their profits by reducing the expenses associated with competitive advertising and avoiding a race to the bottom in terms of pricing or service offerings.

Question 4

Which one of the following conditions is required for the success of a tit-for-tat strategy?

Accepted Answer

The tit-for-tat strategy works best in environments where there are a relatively small number of players (oligopolists). This allows each firm to easily observe and respond to the actions of others, making cooperation more feasible and sustainable.

Question 5

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

Accepted Answer

An oligopolist may accept lower short-run profits if it helps establish credibility for its threats, which can be beneficial in the long run by influencing competitors' behavior.

Question 6

A firm may decide to increase its scale so that it has excess production capacity because, by doing so, it is able to

Accepted Answer

Increasing scale to have excess production capacity can serve as a deterrent to potential competitors, signaling that the firm can lower prices or increase output if needed to maintain its market position. This strategy can discourage new entrants from competing.

Question 7

Game theory is concerned with

Accepted Answer

Game theory is primarily focused on analyzing and determining optimal strategies in situations of conflict or cooperation between different parties, rather than predicting gambling outcomes, studying market behaviors, or observing animal migration patterns.

Question 8

Which of the following is an example of a game theory strategy?

Accepted Answer

"You scratch my back and I'll scratch yours" is an example of a cooperative strategy in game theory, where parties work together for mutual benefit.

Question 9

In game theory, a situation in which one firm can gain only what another firm loses is called a

Accepted Answer

In a zero-sum game, the gain of one participant is exactly balanced by the losses of the other participant(s). This means that the total sum of gains and losses in the game is zero, reflecting a situation where one firm's gain is another firm's loss.

Question 10

Which of the following is a nonzero-sum game?

Accepted Answer

The Prisoners' dilemma is a nonzero-sum game because the total payoff to all players is not constant; the outcome depends on the players' strategies.

Question 11

Which of the following is a zero-sum game?

Accepted Answer

Chess is a zero-sum game because one player's gain is exactly equal to the other player's loss. In chess, there is a winner and a loser (or a draw), and the sum of the outcomes is zero, fitting the definition of a zero-sum game.

Question 12

A plan of action that considers the reactions of rivals is an example of

Accepted Answer

Strategic behavior involves making decisions that take into account the actions and reactions of competitors, aiming to achieve a competitive advantage.

Question 13

In game theory, the outcome or consequence of a strategy is referred to as the

Accepted Answer

The term "payoff" in game theory refers to the outcome or consequence of a strategy, representing the gains or losses to the players involved.

Question 14

A game that involves interrelated decisions that are made over time is a

Accepted Answer

A sequential game is one where players make decisions at different points in time, with each decision potentially affecting future decisions and outcomes.

Question 15

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

Accepted Answer

A repeated game is one in which players encounter the same situation multiple times, allowing them to potentially adjust their strategies based on past outcomes.

Question 16

Sequential games can be solved using

Accepted Answer

Backward induction is a method for solving sequential games by working backward from the end of the game to the beginning. This allows players to identify the optimal strategies for each stage of the game, taking into account the potential actions of their opponents.

Question 17

Industrial policy

Accepted Answer

Industrial policy involves strategic actions by a government to encourage the development and growth of specific sectors or industries within the national economy. This can include protectionist measures, subsidies, and other forms of support designed to give certain firms or industries a competitive edge on both a national and international level.

Question 18

A firm that is threatened by the potential entry of competitors into a market builds excess production capacity. This is an example of

Accepted Answer

Building excess production capacity can serve as a credible threat to potential entrants by signaling that the firm is prepared to lower prices or flood the market if new competitors enter, thereby deterring entry.

Question 19

Consider the following simultaneous move game:
$\begin{array}{|c|c|c|c|}
&&\text { player II}\
\hline && \text { A } & \text { B } \
\hline\text { player I}& \text { A } & (100,100) & (0,200) \
\hline &\text { B } & (200,0) & (300,300) \
\hline
\end{array}$ The matrix above represents the payoffs to each player (I and Ii)based on their selected strategies (A and B) . For example, if player I selects B as its strategy and player II selects A, then the payoffs will be 200 to player I and 0 to player II. What is the dominant strategy for player II in this game?

Accepted Answer

A dominant strategy is one that results in the highest payoff for a player, regardless of what the other player does. For player II, choosing B yields a payoff of 200 if player I chooses A, and 300 if player I chooses B, which are both higher than the payoffs from choosing A (100 if player I chooses A, and 0 if player I chooses B). Therefore, B is the dominant strategy for player II.

Question 20

Consider the following simultaneous move game:
$\begin{array}{|c|c|c|c|}
&&\text { player II}\
\hline && \text { A } & \text { B } \
\hline\text { player I}& \text { A } & (100,100) & (0,200) \
\hline &\text { B } & (200,0) & (300,300) \
\hline
\end{array}$ The matrix above represents the payoffs to each player (I and Ii)based on their selected strategies (A and B) . For example, if player I selects B as its strategy and player II selects A, then the payoffs will be 200 to player I and 0 to player II. What is the best response strategy of player I to player II's choice of strategy A?

Accepted Answer

When Player II chooses strategy A, Player I gets a payoff of 100 if they choose A and a payoff of 200 if they choose B. Therefore, the best response for Player I is B, as it gives them the higher payoff.

Quiz 11: Game Theory and Strategic Behavior