Week 6

Question 1

What is a social dilema?

Answer 1

These occur when people do not take adequate account of the effects of their actions on others, whether these are positive or negative.

Question 2

What are social interactions?

Answer 2

Situations in which there are two or moer people, and the actions taken by each person affect both their own outcome and other people’s outcomes.

Question 3

What is a strategic interaction?

Answer 3

When people engaged in social interaction are aware of the ways their actions affect others

Question 4

What is game theory?

Answer 4

A set of models of strategic interactions.

Question 5

What is a market glut?

Answer 5

A low price in the market

Question 6

What is a ‘simultaneous game’?

Answer 6

Players make their decisions at the same time, not knowing what the other person has decided to do

Question 7

In a payoff matrix cell, what does the bottom left and top right number represent?

Answer 7

1st (bottom left) = Payoff for row player

2nd (top right) = Payoff for column player

Question 8

What is an equilibrium in a game?

Answer 8

The overlapping strategy that both players would chose once all responses have been tested.

I.E in this scenario, neither player would chose to produce the other good.

Question 9

What is a Nash equilibirum?

Answer 9

A strategy or set of strategies in which each player plays a best response in the scenario.

Question 10

How do we write a strategy in shorthand?

Answer 10

(x,y)

x = good produced by row player
y = good produced by column player

Question 11

Why are some payoff matric games referred to as ‘Invisible Hand Games?’

Answer 11

Because e=they reflect Adam Smith’s theory that simple market forces can lead players acting in self-interest to a production decision that is in their best interest, without any communication between them.

Question 12

How do you talk through the payoff matrix?

Answer 12

If A chooses to do this, then B is better off doing…

Question 13

What is a ‘dominant strategy’?

Answer 13

When one player choses the same strategy no matter what their opponent chooses

Question 14

What is a ‘dominant strategy equilibrium?’

Answer 14

When the nash equilibrium is the dominant trat for both players

Question 15

What is the ‘Prisoners Dilema’?

Answer 15

A situation in a PayOff matrix where both players will chose a less beneficial outcome due to self-interest despite their being a greater payout equilibrium that could be attained via collusion

Question 16

What does the term ‘allocation’ refer to?

Answer 16

the outcome of an economic interaction

Question 17

What is the ‘Pareto criterion’?

Answer 17

That allocation A is better than allocation B if at least one party would be better off with A than B, and nobody would be worse off.

‘A Pareto dominates B’

Question 18

What is Pareto’s law?

Answer 18

That the richest 20% of the population typically holds 80% of the wealth

Question 19

What quality must an allocation have for it to be pareto efficient>

Answer 19

It is not pareto-dominated by any other allocation

I.E there is no alternate allocation where one party would be better off with no other parties being worse off

Question 20

What is a Public Good Game?

Answer 20

When one individual bears a cost to provide a good, everyone receives a benefit

-> leads to the free-rider problem

Question 21

What is the difference between Common Property and Open-access resources?

Answer 21

Common Property = Well=defined community of users who can in practise prevent outsiders from expliting their resource

Open-access = Oceans fisheries etc..

Question 22

Define Altruism

Answer 22

A social preference in which an individual’s utility is increased by benefits to others

Question 23

Define economic rent

Answer 23

The difference between the net benefit gained from an action, and the net benefit of the next best alternative

Question 24

How do you calculate the expected pay-off in an ultimatum game?

Answer 24

(Probability of Acceptance) X (Pay off if accepted)

Question 25

What is a coordination game?

Answer 25

When each player would like to ensure their action coordinates with their opponent’s action

Question 26

In what circumstance would a pay-off matric game not be called an invisible hand game?

Answer 26

When the players MAY NOT REACH the outcome that is best for both of them.

Question 27

When does a conflict of interest occur in a coordination game?

Answer 27

When players would prefer different Nash equilibria

Question 28

What is a hawk-dove game?

Answer 28

A game in which players can act like an aggressive and selfish hawk or peaceful dove