Exam prep Flashcards
Nash Equilibrium requires that there are many players
False
When asymmetric information is introduced into a game, this typically
changes the strategy set and changes the outcome of the game
Cognitive biases help us understand why CEOs: A) Make errors that are entirely specific to the firm, B) Make systematic decision making errors, C) Make random decision making errors
B. Make systematic decision making errors
In a game, the number of subgame perfect equilibria will always be higher than the number of Nash equilibria
False
In a classical decision theory, decision-makers have unstable, preferences, limited attentional and computational capacities, and their behaviors are driven by expectation of consequences
False
Loss aversion means that A) we pay more attention to nonrecoverable costs (and potential losses) when considering future actions, B) We feel losses more acutely than gains of the same amount, C) We root our thinking in an initial value and, fearing loss, we fail to sufficiently adjust our thinking away from that value
B) We feel losses more acutely than gains of the same amount
Excessive optimism and overconfidence are examples of stability biases:
False
When we seek to find the subgame perfect equilibrium of a game, we A) Start at the bottom of the extensive from game and solve by means of backward induction, B) Start at the top of the extensive form game and solve by means of forward deduction, C) Add players to the game
A) Start at the bottom of the extensive from game and solve by means of backward induction
Cognitive biases are always problematic (i.e., reduce value creation) to firms
False
In game theory, “strategies” are those actions of a player that are not conditioned on what others do:
False
The first Welfare theorem says that any efficient allocation can be decentralized as a competitive equilibrium
False
In the world described by the First Welfare theorem, there are no cooperation problems bu there may be coordination problems
False
Cognitive biases may be a source of bargainin costs
True
The Coase theorem assumes that: A) Transaction costs are zero, B) Transaction costs are zero and there are no wealth effects, C) The sub-game perfect equilibrium will always be optimal
B) Transaction costs are zero and there are no wealth effects
The first welfare theorem and the coase theorem: A) Describe realistic theoretical ideals, B) Present imaginary worlds in which markets don’t exist, C) Describe the conditions under which first best efficient outcomes can be reached
C) Describe the conditions under which first best efficient outcomes can be reached
A key implication of the Coase theorem is that the more complete a contract, the further away we get from efficiency (all else equal)
False
The Coase Theorem implies that the closer we get to full information, the closer we get to efficiency (all else equal)
True
When transaction costs are really high, firms are highly flexible
False
When there are transaction costs and welath effects, efficiency has no meaning
False
Firms cannot use the price mechanism inside their hierachies, as prices onlu make sense in a market
False
The basic ingredients of the agency problem are: A) Incomplete contracts, opportunism, and asset specificity, B) A surplus, asymmetric information, and conflicts of interest, C) A principal, an agent, and a conflict
B) A surplus, asymmetric information, and conflicts of interes
The agency problem describes a sitution where the Coase theorem doesn’t hold
True
In agency theory, contracting is such that the parties can perfectly observe each others’ actions
False
In agency theory, monitoring and incentives are alternative
True, False