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1) Carefully explain the difference between a strategy (call it A) being strictly

dominant over another strategy (call it B), and a strategy being strictly dominated
by another strategy. Also explain how weak dominance differs from strict
dominance.
Answer:
A is being strictly dominant over B means that every outcome in A is greater than in B.
While, A is being strictly dominated by B means that every outcome in A is much smaller
than in B.
2) Using your own words, explain how the concept of elimination of dominated
strategies works.
Answer:
The first is comparing the outcomes of those strategies to see what strategy is dominated
by other (weakly or strictly). When finding out the strategy that is dominated by the
others, we can eliminate that strategy from our choices. Doing the same to figure out the
last strategy that is dominant other strategies.
3) Indicate whether the following statement is TRUE or FALSE and explain your
answer: If a game has a unique outcome by the elimination of dominated
strategies, then that outcome is also a Nash equilibrium.
Answer:
The following statement is TRUE. A Nash equilibrium is the solution to a game that two
or more players have a strategy, and with each participant considering an opponent’s
choice, he has no incentive, nothing to gain, by switching his strategy. In the Nash
Equilibrium, each player's strategy is optimal when considering the decisions of other
players (source: Investopedia). In a game, there is more than one Nash equilibrium. The
Elimination of dominated strategies is also the way to find out the best choice that
players can play. So, if there is only one best outcome in the game, this outcome is also a
Nash equilibrium.
4) MULTIPLE CHOICE (identify the one best answer below and explain your
reasoning for each option): Suppose that if Joe plays action X, then Helena has a
payoff of 5 from playing action Y, and a payoff of 5 from playing action Z (she
has no other actions available). We can then conclude that:
a. Z is not Helena’s best response to X.
b. Y is not Helena’s best response to X.
c. Helena has two best responses to X.
d. Joe likes Helena but she has a boyfriend.
e. None of the above.
Answer:
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c. Helena has two best responses to X.
We can draw a table.
Helena
Joe X Y Z
x,5 y,5
As we can see on the table, Helena always has a payoff of 5 when Joe plays X. The
outcome of Joe does not matter in this case. So Helena has two best responses to X.
5) In the movie Rebel Without a Cause, James Dean and Buzz Gunderson compete
for the favours of sixteen-year-old Judy. Buzz's gang members steal two cars. The
group of teenagers gathers on a Los Angeles lookout, with a cliff that drops down
to the Pacific Ocean. James and Buzz are to drive the stolen cars toward the cliff.
The first person to jump from his car is declared the chicken (which is bad). The
last person to jump is the hero (which is good), capturing Judy's affection and the
gang's respect. The driverless cars continue over the cliff and plunge to the rocks
at its base.
Each driver can make two possible actions. Jump when he feels endangered (be a chicken)
or jumps AFTER the other driver jumps (be a rooster). Assuming that both feel endangered
at the same moment, the following matrix represents the payoffs for James and Buzz for
each choice of strategy.
Buzz
Chicken Rooster
James Chicken 70,70 50,100
Rooster 100,50 0,0

a. State all the dominated strategies in the game, by which strategy they are dominated,
and whether weakly or strictly.
b. Solve the game by the elimination of dominated strategies. What is the equilibrium
outcome by dominance, if any?
c. What is (or are) the pure strategy Nash equilibria of this game? Explain precisely (prove)
why it is the Nash equilibrium (if there are more just pick one of them). Is one more likely
than the other(s)?
d. How would YOU play the game? If both players played the way you would, would such
strategy profile be a Nash equilibrium? Only after you answer this question, watch this
video see what happened in the movie: www.youtube.com/watch?v=u7hZ9jKrwvo.

Answer:
a) Thinking about James strategies. If James picks chicken, James can get 70 or 50. If
James picks rooster, James can get 100 or 0. 100 is bigger than 70 but 0 is much
smaller than 50. So, James can not eliminate any strategy in this case. Buzz stands in
the same situation, Buzz also can not eliminate any strategy.
b) We can not solve this game by using the elimination of dominated strategies.
c) We have two Nash equilibrium in this game. Those are (C,R) and (R,C)(C stands for
chicken, R stands for rooster). We can assume that Buzz chooses C, James absolutely
chooses R because the outcome of R is 100, it is bigger than 70 of C. If Buzz chooses R,
James will choose C because 50 is much bigger than 0. We can also think in the same
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way to Buzz and Buzz also gets the same result as James. Hence, we found 2 nash
equilibrium that are (C,R) and (R,C).
d) I will play the same strategy as the above answered on task c.

6) Consider the following one-shot simultaneous game:

a. Before solving the game, put yourself in the position of Firm 1, and choose your play.
Then put yourself in the position of Firm 2, and choose your play (ignoring what you did as
Firm 1).
b. State all the dominated strategies in the game, by which strategy they are dominated,
and whether weakly or strictly.
c. What is the equilibrium outcome by dominance (by the elimination of dominated
strategies), if any?
d. What is (or are) the pure strategy Nash equilibria of this game?
e. Compare the outcomes in c. and a., and if they differ, explain why (focusing on the way
you were thinking in each case).

Answer: A stands for advertising campaign, O stands for offer discounts, and D stands for
doing nothing.
a) I am in the position of Firm 1: Comparing O and D I can see that O is weakly dominant
D(2>0, 3=3), so D is eliminated from my strategies. By comparing A and O, I found
that I can not eliminate any strategy. So, I have 2 choices are A and O. Let’s think
about what Firm 2 will do. They have 2 options is A and D, comparing this 2 options I
can see that Firm 2 absolutely picks A(2>1, 2>1) because the outcome they get is
bigger than if they pick D. When I can surely that F2 play A, so I definitely play O,
because the outcome of O is 2, while the outcome of A is 1.
I am in the position of F2: I will think in the same way as F1 think. So I can eliminate
option D of the F1, and the best outcome I could get is 2 if I play A. so, the best choice
of these two firms is (O,A).
b) F1: D is weakly dominated by A and O. D is eliminated from F1 strategies.
F2: D is weakly dominated by A. D is eliminated.
F1: A is weakly dominated by O. A is eliminated.
c) The equilibrium is (O,A).
d) The pure strategy Nash equilibria are (O,A).
e) There is no difference between the outcomes in c. and a.
7) Financial literacy, and more generally independent thinking, has become a big topic
in education. Policymakers attempt to implement programs at school to promote it.
Economics is well suited to help in this regard, and in fact later in the subject we
will talk about the related topics of spending, saving, and investment. Jan was
interviewed on these themes for a series on Channel 31, you can find the video at
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https://www.youtube.com/watch?v=okOhm-QjKys (you can put the subtitles on if
you need to)
a. Summarise the interview in 3-5 sentences.
b. Write down one idea discussed in the interview that you found new or interesting, or
that you disagree with, and briefly explain why.
c. Write down one question on the topic that you would like to ask either the guest or the
presenter.

Answer:
a) To reduce the risk, investors should diversify their investment portfolio. The important
thing is no one can compare the satisfactory between two people. People should look
forward to the future result rather than what they can get immediately.
b) Everyone should carefully decide the way they spend their money. The way people
spend their money could show how smart they are.
c) In some countries, buying a luxury thing can lead to a contract that they can get more
money. So, does this follow any economic rule?
0) (ALSO A PART OF THE ASSESSMENT!) You can choose ONE from the following two
tasks (you can obviously do both if you have time)
a. Write one good question about any issues covered in this problem set. You will ask
and discuss it in your tutorial so try to think of the answer too.

Question: Hows to solve the game if there are more than three players playing some
kinds of game theory?
b. Consider the cartoon below from my book and try to come up with funny/interesting
text for the bubble that relates to any of the above-covered material.