Game Theory Models

Question 1

What are the assumptions underlying “Chicken” Model?

Answer 1

Players prefer to do the opposite of the other's actions
No dominant strategy
Two Equilibria (A,B) ; (B,A) 
In each equilibrium the person playing A has a higher payoff

Question 2

If a Chicken game is played once, explain what is likely to happen and why?

Answer 2

There is no dominant strategy, therefore, no strategy which is always best

If this game were played once, anything can happen. Any outcome can be rationalised (e.g. A,A)

In the long run, we would expect a convergence to (A,B) or (B,A)

Question 3

What might the two actions of A and B represent in a industrial Economy in a chicken model?

Answer 3

Consider an innovation which is both product and process.
Innovation allows the innovator to:
1). Produce existing products more cheaply
2). Produce a new product which is a substituted to existing product.
If one innovates and the other does not then the innovator is dominant.
if both innovate they incur cost but do not differentiate.
Other examples: Quality game, Raider Game

Question 4

What could firms do in a attempt to gain a higher pay-off?

Answer 4

Firms would need to solve the co-ordination problem by implementing a solution which would solidify expectations

1) . Reputation
2) . Signalling/ Communication
3) . Convention
4) . Commitment

Question 5

Would making a “Chicken” Game sequential change the likely outcome?

Answer 5

Yes, by changing the sequence in which players choose their decisions, the outcome may change. Lets assume player 1 picks first:
1). whatever they pick, their opponent will pick the opposite.
2). Optimal for player 1 to select A, forcing the other to select B.
Order of play, therefore, tends to matter when there are multiple equilibria.