1) For threats or commitments to be effective, they must be a) irrational b)rati
ID: 1195469 • Letter: 1
Question
1) For threats or commitments to be effective, they must be
a) irrational
b)rational
c) credible
d) None of the above
2) George and KC have been working jobs that pay $20,000 and $30,000/year, respectively. They are trying to decide whether to quit their jobs and jointly open up a taco stand on the beach, which they estimate can earn $60,000/year. How will the taco stand proceeds be split?
a) They won't quit their jobs
b) George gets $25,000 and KC gets $35,000
c) George gets $30,000 and KC gets $30,000
d) George gets $35,000 and KC gets $25,000
Labor
Comply
Bargain Hard
Management
Comply
50,50
25,75
Bargain Hard
75,25
0,0
3) If the game was changed to a sequential game with Labor moving first, how much would labor earn?
a) 0
b) 25
c) 50
d) 75
4) The prisoner's dilemma is an example of
a) A sequential game
b) A non-cooperative game
c) A shirking game
d) A dating game
5) Nash equibilibrium is
a) where one player maximizes his payoff and the other doesn't
b) where each player maximizes the expected payoff
c) similar to a dominant strategy
d) difficult to determine
Labor
Comply
Bargain Hard
Management
Comply
50,50
25,75
Bargain Hard
75,25
0,0
Explanation / Answer
a. For threats or commitments to be effective, they must be credible. Only credible threats are effecting in a game. Credibility means the likelihood that a threat will be carried out by the player.
b. George and KC earn a total surplus of $10,000 when up a taco stand on the beach.
Surplus =$60,000-(20,000+30,000)
=$10,000
They should split this surplus into half. Both get $5000 each. Thus,George gets $25,000 and KC gets $35,000.
c. When labor gets the first mover advantage, he will maximising his gains by commiting to bargain hard and gets a pay off of 75.
d. Prisoner's dilemma is an example of a non-cooperative game. This is because in this game non-cooperation with your partner is always the best strategy for a player.
e. Nash equilibrium is where each player maximizes the expected payoff. At nash equilibrium , every player in the game tries to maximise its pay-off.
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