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ECON 233 – Introduction to Game Theory

Quiz 2



Date: 22nd June 2017

Total Marks: 24
Time: 40 minutes

1. For the following 2 player static game Player 2

x y
Player 1 a 3,1 2,3
b 2,1 3,0

a. Find the pure strategy Nash Equilibria, if any. (1 mark)

b. Find the mixed strategy Nash equilibria, if any. (2 marks)
c. Plot the Best Responses for both players on a single axis and use it to highlight the equilibria you
found in parts a. and c. (2 marks)
2. For the following game

A 4,3 2,1 1,3
B 2,3 1,5 3,5
C 1,5 0,4 7,4

a. Iteratively eliminate all strictly dominated strategies; state the eliminated strategy, it’s
reason for elimination and the reduced game for each elimination. (5 marks)
b. State whether it is dominance solvable using IESDS. (1 mark)
c. What are the rationalizable strategies? (1 mark)
d. State any pure strategy Nash Equilibria (1 mark)
3. A 2-player sequential game has the following rules. Player 1 moves first and decides whether to
put $0, $1 or $3 into an investment. If he puts in $0 then the game ends and both players get
nothing. In both other cases, Player 2 then has two options - either invest the same amount of
money as player 1 (match) or take the money Player 1 (steal) has put in. Both players then make
a net return on their investment (their payoffs!) as per the following table

Match Steal
A (invest $1) 1,1.5 -1,1
B (invest $3) 3, 2 -3,3

a. Draw the extensive form of this game. (2 marks)

b. State the strategy space for both players. (1 mark)
c. Draw the Normal form of the game (don’t forget all of player 1’s moves!) and find the
Nash Equilibria for this game. (2 marks)
d. Use Backward Induction to find SPE for this game. (2 marks)
e. Is the SPE outcome efficient? Comment on this situation. (1 mark)
4. Answer ANY ONE of the following questions about Dr. Strangelove (3 marks)
a. At what point did General Ripper (the base commander who ordered Plan R) commit
suicide and why?
b. How did the British RAF Officer Mandrake realise that there is no war on? Why did no
one else on the base realise this?
c. We’ve spoken about why it was a mistake for the USSR to not announce the existence
of the Doomsday Device. How did this mistake come about?