Game Theory

Question 1

Define simultaneous games

Answer 1

games where bids occur at the same time

Question 2

In a simultaneous game, if there is a dominant strategy for each player then we would predict that…

Answer 2

There is an eq’m outcome of the game

Question 3

Define a dominant strategy vs strictly dominant

Answer 3

a strategy that is best for one player no matter what the other player does. If the strategy is strictly dominant it is always best.

Question 4

Explain Nash Eq’m

Answer 4

Player A’s choice is optimal given Player B’s choice & Player B’s choice is optimal given Player A’s choice. NE do not have to be Pareto efficient, an example of one would be the prisoners dilemma– both prisoners confessing is a nash but inefficent

Question 5

Define sequential games

Answer 5

games where one person usually moves first and there’s a follower. These games involve backward induction – reasoning backwards in time to determine a sequence of optimal actions

Question 6

I trust you know how to do Cornout Problems, but state how you find the reaction function and market price

Answer 6

Take a firm’s profit maximization and find outputs, plug outputs together = reaction function

Plug BOTH optimal outputs into inverse demand function if both firms have the same one. Plug optimal outputs into individual inverse demand function if separate.

Question 7

For Stackleburg models, who’s reaction function do you solve for first?

Answer 7

The follower. Plug the follower’s reaction function into the leader’s profit function.