Question 1

Credibility in threats and commitments in sequential games is based on

Accepted Answer

Credibility in threats and commitments in sequential games is based on analyzing best reply responses. This means that a player must choose an action that is the best response to each possible action of the other players. By doing so, a player can signal their commitment to a particular strategy, making their threats or promises more credible. Randomizing actions or relying on explicit communications may be useful in some situations, but they do not guarantee credibility in the same way that analyzing best reply responses does. Effective scenario planning can also be helpful, but it is not the foundation of credibility in threats and commitments.

Question 2

A dominant strategy differs from a Nash equilibrium strategy in that

Accepted Answer

A dominant strategy is one that is best for a player regardless of what strategies other players choose, making it sufficient to predict behavior. In contrast, a Nash equilibrium involves players choosing strategies that are best responses to each other, and it may not be unique.

Question 3

The starting point of many methods for predicting equilibrium strategy in sequential games is

Accepted Answer

E

Question 4

In adopting mixed Nash equilibrium strategy,a player is attempting to

Accepted Answer

The answer of In adopting mixed Nash equilibrium strategy,a player...

Question 5

To trust a potential cooperator until the first defection and then never cooperate thereafter is

Accepted Answer

This strategy is known as the "grim trigger" strategy. Once a defection occurs, the player permanently switches to never cooperating again. This can be effective in deterring defections, but can also lead to a breakdown in cooperation if one player makes a mistake or miscommunication occurs.

Question 6

Non-cooperative sequential games can incorporate all the following features except

Accepted Answer

Non-cooperative sequential games do not involve third-party enforceable agreements as they are an aspect of cooperative games. The other options (A, B, C, and E) are all features that can be incorporated into non-cooperative sequential games.

Question 7

An illustration of a non-credible commitment is the promise

Accepted Answer

The answer of An illustration of a non-credible commitment is...

Question 8

When there is no Equilibrium (or no Nash Equilibrium),we expect that:

Accepted Answer

When there is no Equilibrium (or no Nash Equilibrium), a firm may choose to follow a randomized strategy in order to avoid the risk of making a predictable move that could be exploited by the other firm. This can help them achieve a better outcome than choosing a deterministic strategy. The other options are less likely outcomes and may not lead to the best result for the firm.

Question 9

The Prisoner's Dilemma involves two spies who are held in separate soundproof rooms.But even if the two spies could communicate,what makes it difficult for them to achieve the cooperative solution (both not confessing)?

Accepted Answer

The most difficult aspect of the Prisoner's Dilemma is that both spies have incentives to betray each other. This is because confessing provides a better outcome for an individual spy, even if it leads to a worse outcome overall. This creates a situation where cooperation is difficult to achieve, even if the two spies could communicate.

Question 10

A strategy game is

Accepted Answer

A strategy game involves interdependent choice behavior by individuals or groups who share a common goal. It is a situation where the actions of one participant significantly affect the outcome for all participants involved. Option A refers to a pricing game, which is a type of strategic game, but not the only form. Option B describes a coordination game, where participants make independent decisions with the same goal. Option D is a complete generic answer, which can apply to any question, and thus, is not a specific or correct answer in this case.

Question 11

A key to analyzing subgame perfect equilibrium strategy in sequential games is

Accepted Answer

An explicit order of play is essential in sequential games to determine the subgame perfect equilibrium, as it allows players to anticipate and respond to the actions of others at each stage of the game.

Question 12

When there is an Equilibrium (or a Nash Equilibrium),we expect that:

Accepted Answer

An equilibrium means that each firm is choosing the best strategy given the other firm's choice. Therefore, neither firm has an incentive to change their strategy, otherwise they would end up worse off. Therefore, we expect that once the firms reach an equilibrium, they will not change their strategy.

Question 13

Essential components of a game include all of the following except:

Accepted Answer

While cooperation can be present in many games, it is not an essential component of a game. The essential components of a game include players, payoffs, actions, and an information set.

Question 14

The difference between cooperative and non-cooperative games is

Accepted Answer

Cooperative games allow for the possibility of side payments or transfers among players to facilitate agreements or collusion, which is not a feature of non-cooperative games. Non-cooperative games typically do not involve such arrangements and focus on strategy in the absence of binding agreements.

Question 15

In a zero-sum game

Accepted Answer

In a zero-sum game, the gains of the winners are equal to the losses of the losers. This means that the total payoff of the game is fixed, and any gain of one player is compensated by an equal loss of another player. Therefore, the sum of payoffs across all players is constant, and the game is competitive, with winners and losers. Choice A is incorrect because it implies that all players receive the same payoff, which is not necessarily true in a zero-sum game. Choice B is incorrect because it implies that all players can win simultaneously, which is not possible in a zero-sum game where the total payoff is fixed.

Question 16

If two firms operate in a market that is characterized as being a Prisoner's Dilemma,and the two strategies given them are to restrict output or expand output,which of the following strategy pairs would represent the cooperative solution in a duopoly for firm 1 and firm 2,and firm 1 given first in each pair?

Accepted Answer

The cooperative solution in a Prisoner's Dilemma involves both firms restricting output, as this maximizes collective profits. If one firm expands output while the other restricts output, the firm that expands output will earn greater profits at the expense of the other firm. Therefore, option C, where both firms restrict output, is the cooperative solution.

Question 17

Consider the game known as the Prisoner's Dilemma.What's the dilemma?

Accepted Answer

The best choice in the Prisoner's Dilemma is to cooperate by not confessing, as it leads to a better outcome for both players. However, the dilemma arises because each player has an individual incentive to defect and confess, even though it leads to a worse outcome for both players collectively. In other words, the best choice for each player is not necessarily the best choice for the group as a whole. Therefore, the optimal strategy depends on the other player's choice and the level of trust between them.

Question 18

In a game,a dominated strategy is one where:

Accepted Answer

The answer of In a game,a dominated strategy is one...

Question 19

In making promises that are not guaranteed by third parties and in imposing penalties that are not enforced by third parties,all of the following are credibility-enhancing mechanisms except

Accepted Answer

The answer of In making promises that are not guaranteed...

Question 20

In ____ 2-person,nonzero-sum games there is no communication between the participants and no way to enforce agreements.

Accepted Answer

Noncooperative games are characterized by the absence of communication and enforceable agreements between the players. In these games, players act independently and try to maximize their own utility or payoff, without considering the effects of their actions on the other player's utility. Cooperative games, on the other hand, allow for communication and the possibility of forming alliances and agreements between the players to achieve a better outcome for all.

Quiz 13: Best-Practice Tactics: Game Theory