Question 1

Game theory tells how to win at games of chance.

Accepted Answer

A) True 
 B)False

Question 2

Assuming the standard assumptions, in a single-play ultimatum game, the second player's best strategy in the last round is to:

Accepted Answer

A)  reject all but evenly split offers. 
B)  accept any offer greater than zero. 
C)  accept only those offers over 50 percent of the total. 
D)  reject all offers. 
A)  reject all but evenly split offers. 
B)  accept any offer greater than zero. 
C)  accept only those offers over 50 percent of the total. 
D)  reject all offers.

Question 3

TV crime shows illustrate the prisoner's dilemma when the:

Accepted Answer

A)  judge ponders the sentence for the crimes. 
B)  prisoners go to prison for the first time. 
C)  police interview suspects in the same room. 
D)  police interview suspects in different rooms. 
A)  judge ponders the sentence for the crimes. 
B)  prisoners go to prison for the first time. 
C)  police interview suspects in the same room. 
D)  police interview suspects in different rooms.

Question 4

The National Hockey League locked out the hockey players in an effort to negotiate a salary cap with the players' union. A cap would limit the payroll of each team. League officials acknowledged that the teams have brought the problem on themselves by overspending and overpaying some players in an effort to compete for the best players. Why would the teams have caused this problem for themselves?

Accepted Answer

A)  They used explicit collusion instead of implicit collusion. 
B)  They tried to create a contestable market and now suffer because there are no barriers to entry. 
C)  They were caught in the logic of the prisoner's dilemma in which each player maximizing his own self-interest leads to an outcome that is worse off for everyone. 
D)  They tried to create a cartel and suffered the consequences of too much collusion. 
A)  They used explicit collusion instead of implicit collusion. 
B)  They tried to create a contestable market and now suffer because there are no barriers to entry. 
C)  They were caught in the logic of the prisoner's dilemma in which each player maximizing his own self-interest leads to an outcome that is worse off for everyone. 
D)  They tried to create a cartel and suffered the consequences of too much collusion.

Question 5

Consider the following payoff matrix facing Harry and Sally when each chooses to go to the coffee shop listed. Harry wants to avoid Sally at the coffee shop and is not happy when Sally ends up in the same shop he chooses. Sally would like to see Harry, and so she is not happy when Harry ends up in a different coffee shop.  $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\text { Haryy }$
$\begin{array}{|l|l|l|l|}
\hline & & {\text { Starbucks }} & {\text { Dunkin Donuts }} \
\hline \text { Sally } & \text { Starbucks } & \text { H: }-1, \mathrm{~S}: 1 & \text { H: } 1, \mathrm{~S}:-1 \
\hline & \text { Dunkin Donuts } & \text { H: } 1, \mathrm{~S}:-1 & \text { H: }-1, \mathrm{~S}: 1 \
\hline
\end{array}$
 Assuming that Sally and Harry go to the coffee shop each day, what is Harry's best strategy?

Accepted Answer

A)  Go to Starbucks because Sally won't go there. 
B)  Go to Dunkin' Donuts because Sally won't go there. 
C)  Go to Starbucks one day and Dunkin' Donuts the next and maintain that pattern. 
D)  Randomly choose between going to Starbucks and going to Dunkin' Donuts. 
A)  Go to Starbucks because Sally won't go there. 
B)  Go to Dunkin' Donuts because Sally won't go there. 
C)  Go to Starbucks one day and Dunkin' Donuts the next and maintain that pattern. 
D)  Randomly choose between going to Starbucks and going to Dunkin' Donuts.

Question 6

A Nash equilibrium is the:

Accepted Answer

A)  payoff that maximizes the joint payoff. 
B)  output level that minimizes average total cost. 
C)  strategy that maximizes the outcome of all the players. 
D)  set of strategies such that no player can improve his or her position by changing his or her own action. 
A)  payoff that maximizes the joint payoff. 
B)  output level that minimizes average total cost. 
C)  strategy that maximizes the outcome of all the players. 
D)  set of strategies such that no player can improve his or her position by changing his or her own action.

Question 7

The prisoner's dilemma provides an explanation of why detectives interview suspects separately in television crime shows.

Accepted Answer

A) True 
 B)False

Question 8

The equilibrium solution for the following payoff matrix is: $\begin{array} { | l | l | l | } 
\hline& { \text { A } } & \text { A } \
\hline \text { B } & \text { A: } - 1 , B : - 1 & \text { A: } 2 , B : 0 \
\hline \text { B } & \text { A: } 0 , B : 2 & \text { A: } 1 , B : 1 \
\hline
\end{array}$

Accepted Answer

A)  1, 1. 
B)  2, 0. 
C)  0, 2. 
D)  ?1, ?1. 
A)  1, 1. 
B)  2, 0. 
C)  0, 2. 
D)  ?1, ?1.

Question 9

Why might the economy as a whole conform to the predictions of a model even if not all people are rational?

Accepted Answer

A)  The standard model doesn't assume rationality. 
B)  People who are rational will profit from those who are not. 
C)  People who are irrational will profit from those who are not. 
D)  It won't; for the standard model to work, all people must be rational. 
A)  The standard model doesn't assume rationality. 
B)  People who are rational will profit from those who are not. 
C)  People who are irrational will profit from those who are not. 
D)  It won't; for the standard model to work, all people must be rational.

Question 10

Assuming the standard assumptions, in an infinitely long repeated-play ultimatum game, the second player's best strategy is most likely to:

Accepted Answer

A)  reject offers that appear unfair. 
B)  will always accept any offer. 
C)  will always accept only those offers over 50 percent of the total. 
D)  reject all offers. 
A)  reject offers that appear unfair. 
B)  will always accept any offer. 
C)  will always accept only those offers over 50 percent of the total. 
D)  reject all offers.

Question 11

Don and Susanne have both been accused of insider trading. Don knows that if he confesses while Susanne keeps silent, he will receive a 1-month jail sentence. He also knows that if Susanne confesses and he keeps silent, he will receive a 12-month jail sentence. If neither of them confesses, there will be insufficient evidence to convict either of insider trading, but there is enough evidence to convict each of them individually of obstructing justice, which carries a 2-month sentence. If both of them confess, they will both serve a 3-month jail sentence. This situation is:

Accepted Answer

A)  an example of cartel behavior. 
B)  an application of the prisoner's dilemma. 
C)  not realistic because those accused of insider trading always keep silent. 
D)  not realistic because those accused of insider trading are never encouraged to confess. 
A)  an example of cartel behavior. 
B)  an application of the prisoner's dilemma. 
C)  not realistic because those accused of insider trading always keep silent. 
D)  not realistic because those accused of insider trading are never encouraged to confess.

Question 12

Consider the following payoff matrix facing two firms selling the same product in the same market. They must choose whether to price the good at a high or low price.  $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\text { COMPANY } B$
$\begin{array}{|l|l|l|l|}
\hline & & {\text { Low Price }} & {\text { High Price }} \
\hline \text { COMPANY A } & \text { Low Price } & \text { A: } 2, \text { B: }: 2 & \text { A: } 4, \text { B: } 1 \
\hline & \text { High Price } & \text { A: } 1, \text { B: } 3 & \text { A: } 6, \text { B: } 2 \
\hline
\end{array}$  Given this information:

Accepted Answer

A)  A has a dominant strategy but B does not. 
B)  B has a dominant strategy but A does not. 
C)  both A and B have dominant strategies. 
D)  neither A nor B has a dominant strategy. 
A)  A has a dominant strategy but B does not. 
B)  B has a dominant strategy but A does not. 
C)  both A and B have dominant strategies. 
D)  neither A nor B has a dominant strategy.

Question 13

The prisoner's dilemma is an example of a:

Accepted Answer

A)  noncooperative game. 
B)  cooperative game. 
C)  nonstrategic game. 
D)  sequential game. 
A)  noncooperative game. 
B)  cooperative game. 
C)  nonstrategic game. 
D)  sequential game.

Question 14

The formal game theory model assumes that:

Accepted Answer

A)  markets are contestable when no barriers to entry exist. 
B)  the dominant firm in the industry will set product price and other firms will follow. 
C)  each player tries to anticipate the reaction of his or her rivals when making a decision. 
D)  each player ignores the possible reaction of his or her rivals when making a decision. 
A)  markets are contestable when no barriers to entry exist. 
B)  the dominant firm in the industry will set product price and other firms will follow. 
C)  each player tries to anticipate the reaction of his or her rivals when making a decision. 
D)  each player ignores the possible reaction of his or her rivals when making a decision.

Question 15

The Nash equilibrium in the following payoff matrix is: $\begin{array} { | l | l | c | } 
\hline &{ \text { A: Cheat } } & \text { A: Not Cheat } \
\hline \text { B: Cheat } & \text { A: 1, B:-1 } & \text { A: } - 1 , \text { B: 1 } \
\hline \text { B: Not Cheat } & \text { A:-1,B:1 } & \text { A: } 1 , \text { B: } - 1 \
\hline
\end{array}$

Accepted Answer

A)  ?1, ?1. 
B)  ?1, 1. 
C)  1, ?1. 
D)  There is no Nash equilibrium. 
A)  ?1, ?1. 
B)  ?1, 1. 
C)  1, ?1. 
D)  There is no Nash equilibrium.

Question 16

The prisoner's dilemma is a well-known game in which:

Accepted Answer

A)  cooperation between prisoners is always the best independent action. 
B)  noncooperation between prisoners is not the best joint action but is the best independent action. 
C)  players always cheat. 
D)  players never cheat. 
A)  cooperation between prisoners is always the best independent action. 
B)  noncooperation between prisoners is not the best joint action but is the best independent action. 
C)  players always cheat. 
D)  players never cheat.

Game theory tells how to win at games of chance.

Assuming the standard assumptions, in a single-play ultimatum game, the second player's best strategy in the last round is to:

TV crime shows illustrate the prisoner's dilemma when the:

A Nash equilibrium is the:

The prisoner's dilemma provides an explanation of why detectives interview suspects separately in television crime shows.

The equilibrium solution for the following payoff matrix is: A A B A: -1,B:-1 A: 2,B:0 B A: 0,B:2 A: 1,B:1

Why might the economy as a whole conform to the predictions of a model even if not all people are rational?

Assuming the standard assumptions, in an infinitely long repeated-play ultimatum game, the second player's best strategy is most likely to:

The prisoner's dilemma is an example of a:

The formal game theory model assumes that:

The Nash equilibrium in the following payoff matrix is: A: Cheat A: Not Cheat B: Cheat A: 1, B:-1 A: -1, B: 1 B: Not Cheat A:-1,B:1 A: 1, B: -1

The prisoner's dilemma is a well-known game in which:

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

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

Production and Cost Analysis I

Production and Cost Analysis II

Perfect Competition

Monopoly and Monopolistic Competition

Oligopoly and Antitrust Policy

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 Economics and Modern Economic Policy

Microeconomic Policy, Economic Reasoning, and Beyond

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

Game theory tells how to win at games of chance.

Assuming the standard assumptions, in a single-play ultimatum game, the second player's best strategy in the last round is to:

TV crime shows illustrate the prisoner's dilemma when the:

A Nash equilibrium is the:

The prisoner's dilemma provides an explanation of why detectives interview suspects separately in television crime shows.

The equilibrium solution for the following payoff matrix is: A A B A: -1,B:-1 A: 2,B:0 B A: 0,B:2 A: 1,B:1

Why might the economy as a whole conform to the predictions of a model even if not all people are rational?

Assuming the standard assumptions, in an infinitely long repeated-play ultimatum game, the second player's best strategy is most likely to:

The prisoner's dilemma is an example of a:

The formal game theory model assumes that:

The Nash equilibrium in the following payoff matrix is: A: Cheat A: Not Cheat B: Cheat A: 1, B:-1 A: -1, B: 1 B: Not Cheat A:-1,B:1 A: 1, B: -1

The prisoner's dilemma is a well-known game in which:

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

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

Production and Cost Analysis I

Production and Cost Analysis II

Perfect Competition

Monopoly and Monopolistic Competition

Oligopoly and Antitrust Policy

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 Economics and Modern Economic Policy

Microeconomic Policy, Economic Reasoning, and Beyond

Filters