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

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?

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

Game theory suggests that acting in our own immediate best interest leads to the best possible outcome.

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:

Backward induction means a player:

Consider the following payoff matrix facing two criminals. A: Confess A: Not Confess B: Confess A: 20yrs, B: 20yrs A: 50yrs, B: 2yrs B: Not Confess A: 2yrs, B: 50yrs A: 10yrs, B: 10yrs Their options are to confess or not to confess. Given this information:

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. Harry Starbucks Dunkin Donuts Sally Starbucks H: -1,:1 :1,:-1 Dunkin Donuts :1,:-1 :-1,:1 Given this payoff:

The endowment effect in behavioral economics refers to how people:

If two choices are the same but one is presented in a positive manner and one in a negative context, people:

Every value in a payoff matrix represents the:

What is meant by a "payoff matrix"? What are the three things that are shown in the payoff matrix?

Behavioral economics helps explain:

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

Game theory:

In a Vickrey auction, a bidder's strategy:

What is meant by "informal game theory"?

Game theory tells how to win at games of chance.

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

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

Game theory replaces the standard supply and demand model used by economists.