Games

Question 1

What is the prisoner’s dilemma applied to a large group of players?

Answer 1

Tragedy of the Commons

Question 2

3 key features of tragedy of the commons

Answer 2

1. Self-interest rather than common good
2. Scarce resource is shared
3. May explain why economies crash e.g. cut back on spending

Question 3

How do we solve tragedy of commons?

Answer 3

Communication and agreements

Question 4

What is the discount factor equation?

Answer 4

1/(1+r)

Question 5

2 punishment strategies and how do they differ

Answer 5

1. Tit for tat - punish if cheat, stop punishing if not cheat; starts with lowest values
2. Grim strategy - punish in every round after cheat - starts with highest values

Question 6

When does colluding become more useful than cheating?

Answer 6

If payoff from always colluding > payoff from cheat and punish

Question 7

2 external factors that make it difficult to collude

Answer 7

1. Booms - price wars

2. Might go out of business -> less concerned about being punished after defecting

Question 8

Why may there be uncertain conditions for colluding?

Answer 8

Firms choose how much to produce without knowing true level of demand

Question 9

What happens to probability distribution of price if one firm produces more than qc?

Answer 9

shifts left

Question 10

A Commitment Device is a way of

Answer 10

making sure you don’t

choose to do something that is in your short-term interests but goes against you in the long term

Question 11

A Commitment Device must be

Answer 11

visible and irreversible

Question 12

What are minimax strategies?

Answer 12

Minimise potential losses