Question 1

A prisoner's dilemma is

Accepted Answer

The prisoner's dilemma is inefficient because the players would be better off cooperating, but they end up choosing to defect due to self-interest, which harms both parties.

Question 2

The two types of games include

Accepted Answer

Sequential games are those in which players make decisions one after the other, while in simultaneous games, players make decisions at the same time. This distinction is important in game theory, as it can affect the outcome and strategies that players use. The other options listed are not types of games in the same sense as sequential and simultaneous.

Question 3

In a sequential game

Accepted Answer

In a sequential game, a player must anticipate the future moves of their opponents (look forward) and then make decisions based on the anticipated final outcomes (reason back), which is a strategy known as backward induction.

Question 4

In a sequential game

Accepted Answer

In a sequential game, players make their moves in a sequential order, taking into account what their opponents might do in the future. Therefore, players try to figure out an opponent's future response in making their own moves.

Question 5

The purpose of convention is

Accepted Answer

The purpose of convention is to determine one equilibrium out of a multi-equilibrium situation. A convention is a commonly accepted way of behavior that helps to coordinate actions of the players in a game. By following a convention, players can avoid confusion and choose one equilibrium out of many. Creating a Nash game or offering multiple choices to players are not the purposes of convention.

Question 6

If a player has a strategy where one course of action under-performs all others no matter what other players do, that strategy is

Accepted Answer

A dominated strategy is one that is never optimal to play, regardless of what the other players do. It is always better to choose a different strategy in all situations. Therefore, if a player has a strategy where one course of action under-performs all others, it is a dominated strategy. The prisoner's dilemma and dominant strategies do not apply in this scenario, and "loser" is not a technical term in game theory.

Question 7

When a game is played repeatedly

Accepted Answer

When a game is played repeatedly, both customers and firms are able to learn from their past experiences and adjust their strategies accordingly. This can lead to more cooperative outcomes and the possibility of achieving a better equilibrium.

Question 8

Strategic behavior

Accepted Answer

Strategic behavior involves the interdependence of actions, where each participant's actions affect the outcomes for all other participants. This is commonly found in oligopolistic markets where firms must take into account the actions of their competitors when making strategic decisions. It is not necessarily linked to product differentiation or price fixing agreements.

Question 9

A prisoner's dilemma exists when

Accepted Answer

A prisoner's dilemma occurs when each participant can make a decision that benefits each party, but the decision that benefits each party the most leads to the worst outcome for both parties. In other words, each party individually chooses a strategy that benefits themselves the most, but the collective outcome is worse than if they had both cooperated. This means that all parties are worse off than would be the case if the parties could agree to another set of behaviors.

Question 10

When outcomes are uncertain

Accepted Answer

People often require a risk premium as compensation for taking on uncertainty or risk.

Question 11

Often, when no player has a dominant strategy

Accepted Answer

When no player has a dominant strategy, it can lead to circular reasoning as players may keep adjusting their strategies based on the others' choices, potentially leading to a cycle without a clear resolution.

Question 12

The ways to escape a prisoner's dilemma is to

Accepted Answer

Making commitments and playing the game repeatedly allows the players to establish trust and build a reputation for cooperation, potentially leading to a mutually beneficial outcome. Colluding or finding a dominant strategy may not always be possible or practical, and giving up the game does not offer a solution.

Question 13

A commitment

Accepted Answer

A commitment is a promise or a statement that one party will engage in a certain type of behavior regardless of what others do.

Question 14

The components of a game include

Accepted Answer

All of the listed options (the number of players, a set of implicit rules, and perceptions and boundaries) are components of a game, making D the correct choice as it encompasses all the mentioned elements.

Question 15

In a simultaneous game,

Accepted Answer

In a simultaneous game, players make their decisions at the same time without knowing the choices of the other players.

Question 16

Given that the world is filled with uncertainty

Accepted Answer

Managers need to assess the probabilities of certain outcomes in order to make informed decisions despite the uncertainty in the world. This involves using tools such as decision trees and sensitivity analysis to account for different possible scenarios and their likelihoods. Hiring statisticians and using game theory may be helpful in certain situations, but they are not the only or best approaches for dealing with uncertainty.

Question 17

If a player has a strategy where one course of action outperforms all others no matter what other players do, that strategy is

Accepted Answer

If one course of action outperforms all others no matter what other players do, then that course of action is dominant. It means that regardless of the decisions made by other players, this strategy will always provide the best outcome for the player.

Question 18

Forms of commitments include

Accepted Answer

All of these choices are forms of commitments. Warranties and guarantees are agreements to repair or replace products if they do not meet certain standards or break down within a certain time frame. Advertising expenditures can also be seen as a commitment to promote a product or service and attract customers. All of these forms of commitments are promises made by a business to its customers or clients.

Question 19

"Tit-for-tat" is

Accepted Answer

"Tit-for-tat" is a strategy in game theory used to enforce cooperative behavior in repeated games, such as the iterated prisoner's dilemma. It starts with cooperation and then mimics the opponent's previous move, whether cooperative or defection.

Question 20

If there is a combination of strategies in which each player's action is the best response to the actions of other players, then there is

Accepted Answer

A Nash equilibrium is a stable state in which each player has picked the best strategy given the strategies chosen by the other players. Therefore, if there is a combination of strategies in which each player's action is the best response to the actions of other players, then it is a Nash equilibrium.

Quiz 8: When Other Firms React

A prisoner's dilemma is

The two types of games include

In a sequential game

In a sequential game

The purpose of convention is

If a player has a strategy where one course of action under-performs all others no matter what other players do, that strategy is

When a game is played repeatedly

Strategic behavior

A prisoner's dilemma exists when

When outcomes are uncertain

Often, when no player has a dominant strategy

The ways to escape a prisoner's dilemma is to

A commitment

The components of a game include

In a simultaneous game,

Given that the world is filled with uncertainty

If a player has a strategy where one course of action outperforms all others no matter what other players do, that strategy is

Forms of commitments include

"Tit-for-tat" is

If there is a combination of strategies in which each player's action is the best response to the actions of other players, then there is