Question 1

What is a "Vickrey auction"? What is the value of this form of auction?

Accepted Answer

A Vickrey auction is a sealed bid auction where the highest bidder wins but pays the price bid by the next highest bidder. This form of auction gives the bidder the incentive to bid as much as the object is worth to her.

Question 2

Why do behavioral economists use experiments in which people play formal games?

Accepted Answer

Behavioral economists use experiments in which people actually play the formal games to explore the validity of the assumptions in formal game theory and how they might be revised.

Question 3

How can the results of game theory be applied to public policy?

Accepted Answer

In one experiment, people were given two mathematically identical sets of choices. But people responded differently if choices were presented in a negative rather that a positive frame. Similarly, employees are more likely to sign up for a pension plan if they must opt out rather than if they must opt in. People tend to base their choices on how the choice is presented.

Question 4

What is a "screening question"?

Accepted Answer

A "screening questio

Question 5

What is meant by "informal game theory"?

Accepted Answer

Informal game theory is often called beh

Question 6

Why is game theory useful to economists?

Accepted Answer

Game theory is a highly flexible tool th

Question 7

If 90 percent of people operate as behavioral economic suggests, does that mean that the standard model is no longer applicable?

Accepted Answer

Whenever "money is left on the table," w

Question 8

What is a "non-cooperative" game?

Accepted Answer

Non-cooperative games are game

Question 9

Explain what is meant by Nash equilibrium. Must it be the solution that is jointly best for all players?

Accepted Answer

A Nash equilibrium is a set of strategie

Question 10

What is meant by "game theory?"

Accepted Answer

Game theory is formal economic

Question 11

How does a dominant strategy differ from a mixed strategy? Give examples of each type of strategy.

Accepted Answer

A dominant strategy is a strategy that i

Question 12

What is a cooperative game?

Accepted Answer

Cooperative games are games in

Question 13

Give two examples of seemingly irrational behavior that behavioral economists are attempting to explain.

Accepted Answer

(Any two of the following are acceptable

Question 14

What is the link between behavioral economics and formal game theory?

Accepted Answer

Behavioral economics examines

Question 15

Why is the prisoner's dilemma game important to economists?

Accepted Answer

The prisoner's dilem

Question 16

Consider the following payoff matrix that shows the outcomes for two individuals, Aaron and Bob, as they try to decide whether or not to ask out the prettiest and smartest girl in school, Caroline. Caroline likes Aaron better than Bob, but will accept Bob's invitation if Aaron does not ask her out. Assuming that having your offer for a date accepted is the best possible outcome, being rejected is the worst, and having "nothing" happen is in the middle.
 $\begin{array} { l  } 
& \text {BOB }\
 \text {AARON }&\begin{array}{l|l|l|}
&\text { Ask her out } & \text { Don't } \
\hline  \text { Ask}&\text { A: Accepted } & \text { A: Accepted } \
\text { her out}&\text  { B: Rejected } & \text { B: Nothing } \
\hline& \text { A: Nothing } & \text { A: Nothing } \
 \text {don't }&\text { B: Accepted } & \text { B: Nothing }
\end{array}
\end{array}$
 What will each of the boys decide to do?

Accepted Answer

Aaron will ask Caroline out and Bob will

Question 17

Describe an experiment that demonstrated endowment effects.

Accepted Answer

In a classroom experiment designed to de

Question 18

In a single play version of the ultimatum game, what is the optimal strategy, assuming people are only concerned with how much money they receive?

Accepted Answer

The optimal possible

Question 19

In the two-thirds game, what is the Nash equilibrium? Why would choosing the optimal strategy normally cause one to lose?

Accepted Answer

The optimal rollback strategy

Question 20

What is meant by "cheap talk"? Does it influence the outcome of games?

Accepted Answer

Cheap talk refers to communication that

Exam 20: Game Theory, Strategic Decision Making, and Behavioral Economics

What is a "Vickrey auction"? What is the value of this form of auction?

Why do behavioral economists use experiments in which people play formal games?

How can the results of game theory be applied to public policy?

What is a "screening question"?

What is meant by "informal game theory"?

Why is game theory useful to economists?

If 90 percent of people operate as behavioral economic suggests, does that mean that the standard model is no longer applicable?

What is a "non-cooperative" game?

Explain what is meant by Nash equilibrium. Must it be the solution that is jointly best for all players?

What is meant by "game theory?"

How does a dominant strategy differ from a mixed strategy? Give examples of each type of strategy.

What is a cooperative game?

Give two examples of seemingly irrational behavior that behavioral economists are attempting to explain.

What is the link between behavioral economics and formal game theory?

Why is the prisoner's dilemma game important to economists?

Describe an experiment that demonstrated endowment effects.

In a single play version of the ultimatum game, what is the optimal strategy, assuming people are only concerned with how much money they receive?

In the two-thirds game, what is the Nash equilibrium? Why would choosing the optimal strategy normally cause one to lose?

What is meant by "cheap talk"? Does it influence the outcome of games?

Economics and Economic Reasoning

The Production Possibility Model, Trade and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Describing Supply and Demand: Elasticities

Taxation and Government Intervention

Market Failure Versus Government Failure

International Trade Policy, Comparative Advantage, and Outsourcing

International Trade Policy

Production and Cost Analysis I

Production and Cost Analysis II

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Real-World Competition and Technology

Work and the Labor Market

Who Gets What the Distribution of Income

The Logic of Individual Choice: the Foundation of Supply and Demand

Thinking Like a Modern Economist

Behavioral Economic Policy

Microeconomic Policy, Economic Reasoning, and Beyond

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