Global Management Studies
(Introduction to Managerial Economics) - Winter 2017
Practice Questions8 - Game Theory
Section A:
1. Game theory (a) examines the choice of optimal strategies in conflict situations, (b) seeks to predict the behavior of players, (c) can be used to analyze oligopolistic interdependence, (d) all of the above.
2. A dominant strategy refers to the strategy that a player in a game chooses (a) independently of the strategy of the other player, (b) given the strategy of the other player, (c) in Nash equilibrium, (d) in a cartel.
3. Which of the following statements is correct? (a) a dominant strategy equilibrium is always Nash equilibrium, (b) a dominant strategy equilibrium can be Nash equilibrium, (c) a Nash equilibrium is also a dominant strategy equilibrium, (d) a Nash equilibrium cannot be a dominant strategy equilibrium.
4. All games always have (a) a single dominant strategy, (b) multiple dominant strategies, (c) a single Nash equilibrium, (d) none of the above.
5. In a prisoners' dilemma (a) each player has a dominant strategy, (b) the players are not in Nash equilibrium, (c) the players cannot do better by cooperating, (d) none of the above.
6. The prisoners' dilemma can be used to analyze (a) price competition, (b) advertising expenditures by rival firms, (c) product style changes, and (d) all of the above.
7. For a prisoners' dilemma to occur it is sufficient (a) for each player to have a dominant strategy, (b) for both players to be in Nash equilibrium, (c) for each player to adopt its dominant strategy but to be able to do better by cooperation, (d) all of the above.
8. One disadvantage of the analysis of the prisoners' dilemma is that it (a) refer to a one-move game only, (b) does not lead the players to maximize gains, (c) only applies to economics, (d) cannot be overcome by cooperation.
9. The best strategy for repeated prisoners' dilemma games is (a) tit-for-tat, (b) the dominant strategy, (c) the Nash equilibrium, (d) the Cournot solution.
10. Tit-for-tat refers to the game theory rule that (a) you should cooperate as long as your rival cooperates, (b) you should not cooperate when your rival does not cooperate, (c) is best to follow in repeated games, (d) all of the above.
Section B:
11. From the payoff matrix in Table 1, where the payoffs are the profits or losses of the two firms, determine (a) whether firm A has a dominant strategy, (b) whether firm B has a dominant strategy, (c) the optimal strategy for each firm, and the Nash equilibrium, if there is one.
Table 1
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Firm B
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Low Price
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High Price
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|
Firm A
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Low Price
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1,1
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3,-1
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High Price
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-1,3
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4,2
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12. From the payoff matrix of Table 2, where the payoffs (the negative values) are the years of possible imprisonment for individuals A and B, determine (a) whether individual A has a dominant strategy, (b) whether individual B has a dominant strategy, (c) the optimal strategy for each individual. (d) do individuals A and B face a prisoners' dilemma
Table 2
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Individual B
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Confess
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Don't Confess
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Individual A
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Confess
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-5,-5
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-1,-10
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Don't Confess
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-10,-1
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-2,-2
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13. (a) What is the meaning of "tit-for-tat" in game theory? (b) What conditions are usually required for tit-for-tat strategy to be the best strategy?
14. (a) How is a strategic move differentiated from a Nash equilibrium? (b) What is a credible threat? When is a threat not credible? (c) What is the greatest difficulty in deciding and implementing a business strategy on the part of the firm?