Exercise 2: Game theory (6 points) Consider two universities, say Stanford and H
ID: 1142882 • Letter: E
Question
Exercise 2: Game theory (6 points) Consider two universities, say Stanford and Harvard, which are engaged in a grade inflation war. Each university must decide whether to inflate grades or leave them as they initially were. In the short run, inflating grades above those given by the other university may increase the employability of its freshly minted graduates by giving the impression to recrters that its students performed better. The niimbers in each cell represent the university's ranking of the outcome (The first number represents Stanford's ranking, and the second number represents Harvard's ranking. The higher number the better) Table 1: Matrix representation of the pay-off to each university Harvard Stanford Intilate grades-2,-1 not inflate 1. If Stanford chooses to inflate grades, then what will Harvard do? 2. If Stanford chooses not to inflate grades, then what will Harvard do? 3. For whom is inflating grades a dominant strategy?Explanation / Answer
1) Harvard do Inflate grade because it gives less loss to Harvard as compared to Do not inflate.
2) Harvard do Inflate grade because it gives more payoff to Harvard as compared to Do not inflate. Inflate grade gives him payoff of 5 which is greater than payoff of 4 when it chooses Do not inflate.
3) Dominant strategy is a strategy for a player i.e. best response to all strategy profile of other player.
Dominant strategy of Standford is to Inflate grades because it gives higher payoff or lower loss as compared to Do not inflate.
Dominant strategy of Harvard is to Inflate grades because of higher payoff or lower loss.
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