NAME OF CANDIDATE:

STUDENT ID:
SIGNATURE:
The University of New South Wales
School of Economics
Game Theory and Business Strategy
ECON2112
Practice MidTerm Examination, Session 1, 2013
1. TOTAL TIME ALLOWED: 45 MINUTES.
2. THIS PAPER CONSISTS OF 13 QUESTIONS.
3. QUESTIONS ANSWERED CORRECTLY ARE WORTH 2 MARKS.
4. QUESTIONS ANSWERED INCORRECTLY ARE WORTH 0 MARKS.
5. QUESTIONS NOT ANSWERED ARE WORTH 0 MARKS.
6. WRITE YOUR NAME AND STUDENT NUMBER ON THIS PAPER AND ON YOUR AN-
SWER SHEET.
7. CALCULATORS MAY NOT BE USED.
8. EXAM BOOKLETS ARE PROVIDED FOR ROUGH WORK ONLY.
9. ONLY THE ANSWERS GIVEN IN YOUR GENERALIZED ANSWER SHEET WILL BE
GRADED.
10. USE A PENCIL TO FILL OUT YOUR GENERALIZED ANSWER SHEET
11. THIS PAPER MAY NOT BE RETAINED BY THE CANDIDATE.
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1. An n-player normal form game is dened by
(a) A payo matrix.
(b) A set of pure strategies for each player, and a utility function for each player (dened over
the set of strategy proles).
(c) A set of pure strategies for each player, a utility function for each player (dened over the
set of strategy proles), and a Nash equilibrium.
(d) A matrix whenever n = 2.
(e) A set of mixed strategies for each player if they are allowed to randomise.
2. Consider an electorate with 3 million voters (who will be the players in this game) and an elec-
tion with 2 candidates, candidate A and candidate B. Each voter has 2 possible pure strategies,
i.e. voting for candidate A or candidate B (abstention is not allowed). The party with most
votes wins the election and in case of a tie candidate A wins the election. Every voter wants
that candidate A wins the election. Select the correct alternative:
(a) Candidate A wins in every Nash equilibrium of the game.
(b) Every strategy prole is a Nash equilibrium because with 3 million voters nobody can
unilaterally aect the outcome of the election.
(c) Every voter voting for candidate B is a Nash equilibrium.
(d) This situation does not dene a well dened game.
(e) No player has a weakly dominated strategy.
3. Given the following game:
L R
T 7, 2 4, 0
B 4, 0 5, 6
What is the set of Nash equilibria?
(a) {(T, L), (B, R)}.
(b) {(T, L), (B, R), (
1
2
T +
1
2
B,
1
2
L +
1
2
R)}.
(c) {(T, L), (B, R), (
2
5
T +
3
5
B,
3
5
L +
2
5
R)}.
(d) {(T, L), (B, R), (
1
4
T +
3
4
B,
3
4
L +
1
4
R)}.
(e) {(T, L), (B, R), (
3
4
T +
1
4
B,
1
4
L +
3
4
R)}.
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4. Consider the following game: Two people take their cars to opposite ends of a narrow road and
start to drive toward each other. The one who swerves to prevent collision is the chicken and
the one who keeps going straight is the winner. Let the payo to the chicken be 1 and the
payo to the winner 1. If they both swerve they get a payo equal to 0. If nobody swerves they
both get a payo equal to 2. What is the normal form representation of the game?
(a)
swerve straight
swerve 0, 0 1, 1
straight 1, 1 2, 2
(b)
swerve straight
swerve 0, 0 1, 1
straight 1, 1 2, 2
(c)
swerve straight
swerve 2, 2 1, 1
straight 1, 1 0, 0
(d)
swerve straight
swerve 2, 1 0, 0
straight 1, 1 1, 2
(e)
swerve straight
swerve 0, 0 2, 1
straight 1, 2 1, 1
5. What is the set of Nash equilibria of the game in Question 4?
(a)

(swerve, straight), (staight, swerve), (

1
2
swerve +
1
2
straight,
1
2
swerve +
1
2
straight)

.
(b)

(
1
2
swerve +
1
2
straight,
1
2
swerve +
1
2
straight), (
1
3
swerve +
2
3
straight,
2
3
swerve +
1
3
straight)

.
(c)

(straight, straight)

.
(d)

(
1
2
swerve +
1
2
straight,
1
2
swerve +
1
2
straight)

.
(e)

(swerve, swerve)

.
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6. Consider the following extensive form game:
R
1, 3
L
1
b
0, 0
a
2, 1
2
Which of the following is true?
(a) (R, b) is not a Nash equilibrium because it does not satisfy backwards induction.
(b) (R,
1
2
a +
1
2
b) is a Nash equilibrium.
(c) (R, b) is not a Nash equilibrium because R is a weakly dominated strategy.
(d) (R, b) is not a Nash equilibrium because b is a weakly dominated strategy.
(e) b is a strictly dominated strategy for player 2.
7. In the following parameterized two-person game:
L C R
T x, 2 x, 3 3, 1
B 2, 1 x, y 1, y
Select the correct statement.
(a) If x = 2 then B is a weakly dominated strategy, if x > 2 then B is a strictly dominated
strategy.
(b) If y = 3 then B is a weakly dominated strategy.
(c) If y = 1 then (B, C) is a Nash equilibrium.
(d) If x = y then (B, C) is a Nash equilibrium.
(e) (B, L) can never be ais a Nash equilibrium.
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8. What is the set of Nash equilibria of the following three-person game?
L R
T 2, 2, 2 2, 2, 1
M 2, 2, 3 2, 2, 3
B 1, 2, 10 3, 5, 0
X
L R
T 0, 1, 1 3, 3, 0
M 1, 2, 2 0, 5, 2
B 1, 0, 7 2, 3, 12
Y
(a) {(
1
2
T +
1
2
M,
1
2
L +
1
2
R, X)}.
(b) {(
1
2
T +
1
2
M,
1
2
L +
1
2
R, X), (
1
3
T +
2
3
B,
1
2
L +
1
2
R,
1
2
X +
1
2
Y)}.
(c) {(
1
2
T +
1
2
M,
1
2
L +
1
2
R, X), (
1
3
M +
2
3
B,
1
2
L +
1
2
R,
1
2
X +
1
2
Y)}.
(d) {(
1
2
T +
1
2
M,
1
2
L +
1
2
R, X), (
1
3
T +
2
3
B,
1
2
L +
1
2
R, X)}.
9. What is the normal form representation of the following extensive form game?
R L
1
b
0, 0
a
2, 1
2
d
1, 3
c
4, 0
2
(a)
ac ad bc bd
L 2, 1 2, 1 0, 0 0, 0
R 4, 0 1, 3 4, 0 1, 3
(b)
ac bd
L 2, 1 0, 0
R 4, 0 1, 3
(c)
ad bc
L 2, 1 0, 0
R 1, 3 4, 0
(d)
a b
L 2, 1 0, 0
R 4, 0 4, 0
c
c b
L 2, 1 0, 0
R 1, 3 1, 3
d
(e) The game cannot be represented by a normal form game because it is a sequential game.
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10. What are the subgame perfect equilibria of the game in Question 9?
(a) (L, ad) and (R, bd) since both are Nash equilibria.
(b) (L, a) and (R, d).
(c) (R, c) because it maximises player 1s payo.
(d) (L, ad).
(e) (R, c) and (R, d) because they maximise the sum of the payos.
11. What are the subgame perfect equilibria of the following game?
In Out
7,21
1
B T
1
R
1, 1
L
9, 3
R
3, 9
L
1, 1
2
(a) (InT, L), (OutB, R) and (
1
2
OutT +
1
2
OutB,
1
2
L +
1
2
R).
(b) (InT, L) and (OutB, R).
(c) Out and (InT, L).
(d) (InT, L), (OutB, R) and (
4
5
OutT +
1
5
OutB,
1
5
L +
4
5
R).
(e) (InT, L).
12. Given the following game:
L R
T 3, 2 4, 0
B 4, 0 3, 1
What is the set of Nash equilibria?
(a) {(T, L), (B, R)}.
(b) {(T, L)}.
(c) {(T, L), (B, R), (
1
2
T +
1
2
B,
1
2
L +
1
2
R)}.
(d) {(T, L), (B, R), (
1
3
T +
2
3
B,
1
8
L +
7
8
R)}.
(e) This game does not have a Nash equilibrium.
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13. The father of a rich family is on his deathbed and wants to divide his money among his ve
sons. The total amount of money is $100. (Assume that the smallest denomination of currency
is $1, i.e. $1 cannot be split further.) He proposed the following:
The eldest son will propose a division of the money. All the sons will vote on this
division and if it receives at least half of the votes then the money is divided in that
way. If it does not receive half of the votes, the eldest son gets nothing and the second
oldest son will propose a new division of the money to be voted by the remaining
eight. Half of the vote (in this case four votes) are required for this division of the
money to be implemented. Failure removes the second oldest son from the process.
This process will continue in the same vein until some plan receives at least half of
the votes of the remaining heirs.
The sons will do anything to get the most money possible for themselves. Use what you have
learned in class to select the correct answer.
(a) The eldest son will propose a fair division of $20 for each son.
(b) The eldest son will get nothing.
(c) The youngest son will all the money.
(d) Two of the sons will get the same amount of money.
(e) The eldest son will get all the money.
END OF EXAM
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