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Chapter 09 Test Bank
Student: _______________________________________________________________________________________
1. While everyone wants a clean environment, it can be very hard to achieve. An approach governments
could take to promote that outcome is to:
A. create social norms.
B. create and enforce strict laws and heavy fines.
C. influence individual's incentives.
D. All of these are ways governments can get the "green" behavior they want.
2. The prisoner's dilemma is a game of strategy:

A. in which people make rational choices that lead to a less-than-ideal result for all.
B. in which people make rational choices that lead to the ideal result for all.
C. that leads everyone to be as well off as possible without making another worse off.
D. that leads people to make irrational choices that lead to the ideal result for all.
3. To economists, games are:

A. just recreational pursuits like chess, Monopoly, or poker.
B. any situation in which players pursue strategies designed to achieve their goals.
C. situations in which individuals act against their own interest for fun.
D. None of these statements are true.
4. To economists, a game is:

A. any situation in which players pursue strategies designed to achieve their goals.
B. a trivial pursuit that should not be used to analyze the economy or its actors.
C. a way to simplify and minimize the true importance of situations like war.
D. All of these statements are true.
5. Economic games can be used to analyze decisions around which of the following situations?
A. War
B. Business
C. Environmental protection
D. All of these situations.
6. The study of how people behave strategically under different circumstances is called:
A. game theory.
B. game strategy.
C. strategy optimization.
D. strategy theory.
7. Game theory is:

A. the study of how people behave strategically under different circumstances.
B. used by economists to evaluate behavior in a variety of settings.
C. a useful tool in predicting strategic behavior.
8. Game theory is:

B. used to predict the winners of only certain types of strategic games.
C. used to evaluate the microeconomic choices that involve probabilities of different outcomes.
D. the study of games of chance like solitaire or betting on horse races.
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of McGraw-Hill Education.
9. When the trade-offs you face are determined by the choices someone else will make, behaving
rationally involves:
A. behaving strategically.
B. ignoring the behavior of other actors.
C. acting in a way to help others.
10. Behaving strategically:

A. means recognizing that the actions of others will affect the trade-offs you face, and acting accordingly.
B. is an essential part of game theory.
C. involves rational decision making.
11. Behaving strategically means:

A. evaluating decisions in which players act in their own self-interest, but the interplay of those decisions
does not exist.
B. acting to achieve a goal by withholding key information from the person with whom an exchange is
being made.
C. acting to achieve a goal by anticipating the interplay between your own and others' decisions.
D. evaluating the impact of your choices on an uninvolved third party.
12. When your outcomes depend on another's choices, asking __________________ is the key to good
decision making.
A. how will others respond
B. what the wants and constraints are of those involved
C. what the trade-offs are
D. why everyone isn't already doing it
13. All games involve which of the following?

A. Multiple players
B. Strategies
C. Payoffs
D. All games involve all of these things.

A. Rules
B. Chance events
C. Dice
D. Cards

A. Strategies
B. Someone to enforce the rules
C. Cards or dice
D. Full information

A. A predictable outcome
B. Payoffs
C. Full information
D. A game master
17. In games, rules:

A. define the actions that are allowed in a game.
B. need to be loosely adhered to in order to predict an outcome.
C. define the winners of a game.
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D. outline the wrong choices that could be made in a game.
18. In real life, people's behavior is constrained by:

A. laws of nature.
B. legislated rules of society.
C. costs of various actions.
D. All of these are rules that constrain people's behavior.
19. An example of a real-life rule that might constrain people's behavior is:
A. minimum wage legislation.
B. having 24 hours in a day.
C. the earth's limited supply of oil.
D. All of these are examples of real-life rules.
20. In games, strategies are:

A. the outcomes players want to achieve.
B. the same for everyone to achieve the same goal.
C. the plans of action that players follow to achieve their goals.
21. In games, the strategy to reach a particular goal:

A. is the same for everyone.
B. can be different for different players and still achieve the same goal.
C. should be similar to what others have chosen to reach the same goal.
D. has begun to be documented by economists.
22. In games:
A. there is only one strategy associated with each outcome.
B. there are several strategies that can achieve a single goal.
C. all strategies followed in one particular game should all be similar in order to be successful.
D. if one person's strategy is wildly different from those of others, he will typically come in first or last.
23. Payoffs are:

A. the rewards that come from particular actions.
B. always monetary.
C. things that are only enjoyed by the winner.
D. bribes made to gain some advantage unfairly during a game.
24. An example of a payoff in a game would be:

A. a salary.
B. winning an election.
C. having clean drinking water.
D. All of these are examples of payoffs.
25. In game theory, an example of a payoff could be:

A. being the first mover in a game.
B. sharing information with a select few that others aren't privy to.
C. monetary gains made by a player.
D. giving an advantage to only one player.
26. The prisoner's dilemma game can involve:

A. only two players.
B. more than two players.
C. multiple organizations.
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27. The prisoner's dilemma:
A. can be summarized in a payoff matrix.
B. can involve two players.
C. leads to a less-than-ideal outcome for all players.
28. The prisoner's dilemma can be summarized in:

A. a strategy matrix.
B. a strategy tree.
C. a decision matrix.
D. a flowchart.
29. A decision matrix:

A. summarizes the players, strategies, and payoffs associated with a game.
B. outlines the clear outcome of any strategy-based game.
C. shows only the decisions of one player.
D. is not useful in evaluating the strategic choices.
30. When a strategy is the best one to follow no matter what strategy other players choose, it is called a:
A. golden decision.
B. dominated strategy.
C. dominant strategy.
D. zero-sum strategy.
31. A dominant strategy is one:

A. that is the best one to follow, no matter what strategy other players choose.
B. in which a player is forced to choose given the rules of the game.
C. in which a player must choose, even though it does not optimize his outcome.
D. provides a player with the highest payoff in the game.
32. A dominant strategy:

A. exists in every game.
B. is the best one to follow no matter what strategy other players choose.
C. is always the same for all players of a game.
D. awards the highest achievable payoff in a game.
33. In the prisoner's dilemma game:

A. there is a dominant strategy for both players.
B. there is a dominant strategy for only one player.
C. there is no dominant strategy for either player.
D. there is a dominant strategy for a player depending on what the other player does.
34. In the prisoner's dilemma:

A. a dominant strategy exists for only one player.
B. a non-cooperative outcome is predicted.
C. a cooperative win-win outcome can be predicted.

A. a stable outcome is impossible.
B. only one player has a dominant strategy.
C. a stable outcome is possible.
D. a commitment strategy is needed to reach a stable outcome.

A. a cooperative strategy can lead to a more beneficial outcome for both players.
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B. a noncooperative strategy will lead to a positive-positive outcome.
C. a stable outcome is impossible.
D. neither player has a dominant strategy.

A. neither player has a dominant strategy.
B. both players have a dominant strategy.
C. only one player will ever have a dominant strategy.
D. All of these may be true in a prisoner's dilemma game.
38. The prisoner's dilemma game can be used to describe

A. the game Rock Paper Scissors
B. why candidates in elections go negative.
C. how individuals acting in their self-interest leads to the best outcome overall.
D. a zero sum game.
39. The prisoner's dilemma game:

A. is a zero sum game.
B. is a game of chance.
C. is a game with no dominant strategies.
D. is a game with a stable equilibrium.

A. if players can communicate in advance, they will always cooperate.
B. if players can communicate in advance, they may still not cooperate.
C. will always choose to cooperate.
D. will only cooperate if they are trustworthy.
41. The players of prisoner's dilemma-type games:

A. would be much better off if they could cooperate.
B. have an incentive to never cooperate.
C. have a dominant strategy to never cooperate.
42.
The figure shown portrays a game using a:
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A. decision tree.
B. decision matrix.
C. flowchart.
D. graph.
43.
The game in the figure shown is a version of:
A. the prisoner's dilemma.

B. the first-mover advantage.
C. a sequential game.
D. a repeated game.
44.
A. a sequential game.
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B. a simultaneous game.
C. a cooperative game.
D. an ultimatum.
45.
According to the figure shown, if Nike charges a high price, then Adidas should:
A. charge a high price.

B. charge a low price.
C. leave the market.
D. give an ultimatum.
46.
According to the figure shown, if Adidas charges a low price, then Nike should:

B. leave the market.
C. charge a low price.
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47.
According to the figure shown, Nike:
A. has a dominant strategy to charge a high price.

B. does not have a dominant strategy.
C. will reach an optimum outcome by acting in its own self-interest.
D. has a dominant strategy to charge a low price.
48.
According to the figure shown, Adidas:
A. should charge a low price, regardless of what Nike chooses to do.

B. should charge a high price, regardless of what Nike chooses to do.
C. does not have a dominant strategy.
D. should take the first-mover advantage and charge a low price.
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49.
According to the figure shown:
A. there is no stable equilibrium to the game.

B. both players will act in their own self-interest and get a stable, but less than optimum, equilibrium.
C. both players will act in their own self-interest and get an optimum equilibrium that is stable.
D. both players have an incentive to charge a low price and undercut the competition.
50.
The stable outcome of the game in the figure shown will be:
A. Nike charges a high price, and Adidas charges a low price.

B. Nike charges a low price, and Adidas charges a high price.
C. Nike and Adidas both charge a low price.
D. Nike and Adidas both charge a high price.
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51.
The outcome of the game in the figure show predicts that Nike will earn profits of:
A. $2 million.
B. $4 million.
C. $10 million.
D. $15 million.
52.
If the players in the figure shown act in their own self-interest, then we know that Adidas will earn:
A. $2 million.
B. $8 million.
C. $6 million.
D. $10 million.
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53.
If Nike and Adidas are faced with the game in the figure shown, we can predict:
A. an outcome that is good for society and less than ideal for the companies.
B. an outcome that is less than ideal for society, but optimal for the companies.
C. that both will follow their dominant strategy and society will lose.
D. None of these is likely to happen.
54.
If Nike and Adidas are faced with the game in the figure, we can see that:
A. Nike has a dominant strategy, but Adidas does not.

B. Adidas has a dominant strategy, but Nike does not.
C. Neither company has a dominant strategy.
D. Both companies have a dominant strategy.
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55.
This figure shows the payoffs involved when Sarah and Joe work on a school project together for a single
grade. They both will enjoy a higher grade when more effort is put into the project, but they also get
pleasure from goofing off and not working on the project. The payoffs can be thought of as the utility each
would get from the effort they individually put forth and the grade they jointly receive.
If Sarah and Joe are working on a project together and faced with the choices outlined in the figure
shown, we can predict the outcome will be that:
A. both Joe and Sarah put forth low effort.

B. Joe will put forth high effort, and Sarah will put forth low effort.
C. Joe will put forth low effort, and Sarah will put forth high effort.
D. both Joe and Sarah put forth high effort.
56.
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D. a repeated game.
57.
A. a sequential game.
B. a simultaneous game.
C. a cooperative game.
D. an ultimatum.
58.
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According to the figure shown, if Joe puts forth high effort, then Sarah should:
A. put forth high effort.

B. put forth low effort.
C. leave school.
59.
According to the figure shown, if Sarah puts forth low effort, then Joe should:
A. put forth high effort.

B. put forth low effort.
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60.
According to the figure shown, Joe:
A. has a dominant strategy to put forth high effort.

C. has a dominant strategy to put forth low effort.
D. will reach an optimum outcome by acting in his own self-interest.
61.
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According to the figure shown, Sarah:
A. should put forth low effort, regardless of what Joe chooses to do.
B. should put forth high effort, regardless of what Joe choose to do.
D. should take the first-mover advantage and put forth low effort.
62.
According to the figure shown:
A. there is no stable equilibrium to the game.

B. both will act in their own self-interest and get a stable, but less than optimum, equilibrium.
C. both will act in their own self-interest and get an optimum equilibrium that is stable.
D. both have incentive to put forth high effort.
63.
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The outcome of the game in the figure shown will be:
A. Joe puts forth high effort and Sarah puts forth low effort.
B. Joe puts forth low effort and Sarah puts forth high effort.
C. Joe and Sarah both put forth low effort.
D. Joe and Sarah both put forth high effort.
64.
The outcome of the game in the figure shown predicts that Joe will earn utility of:
A. 5.
B. 7.
C. 9.
D. 13.
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65.
If the players in the figure shown act in their own self-interest, then we know that Sarah will earn utility of:
A. 6.
B. 10.
C. 7.
D. 15.
66.
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If Joe and Sarah are faced with the game in the figure shown, we can see that:
A. Joe has a dominant strategy, but Sarah does not.

B. Sarah has a dominant strategy, but Joe does not.
C. neither student has a dominant strategy.
D. both students have a dominant strategy.
67.
Assume that Joe and Sarah, from the figure shown, are also dating, in addition to working together on the
joint school project. Further assume that Joe is madly in love with Sarah, who is an excellent student.
Sarah tells Joe that she will break up with him if he does not put forth high effort on this project. This
future punishment by Sarah is an example of:
A. a commitment strategy.
B. an effort optimization strategy.
C. an ultimatum.
D. a bargaining strategy.
68. Games that don't have a dominant strategy:

A. do not have stable equilibrium outcomes.
B. may have stable equilibrium outcomes.
C. always have stable equilibrium outcomes.
D. don't exist; all games have at least one dominant strategy.
69. If there is no single strategy that is best regardless of other players’ behavior:
A. there is no dominant strategy.
B. the dominant strategy will be to defect.
C. a noncooperative equilibrium is the only possible outcome.
D. the game is called a Prisoners’ dilemma.
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70.
This figure displays the choices and payoffs (company profits) of two music shops-MiiTunes and The
Rock Shop. MiiTunes is an established business in the area deciding whether to charge its usual high
prices or to charge very low prices, in the hopes that a new business will not be able to make a profit at
such low prices. The Rock Shop is trying to decide whether or not it should enter the market and compete
with MiiTunes.
If MiiTunes and The Rock Shop are both in the music business and faced with the choices outlined in the
figure shown, we can predict the outcome will be that:
A. MiiTunes charges low prices and The Rock Shop does not enter.
B. MiiTunes charges high prices and The Rock Shop enters.
C. MiiTunes charges high prices and The Rock Shop does not enter.
D. MiiTunes charges low prices and The Rock Shop enters.
71.
with MiiTunes.
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If MiiTunes and The Rock Shop are both in the music business and faced with the choices outlined in the
figure, we can predict the outcome will be that:
A. MiiTunes charges high prices and The Rock Shop does not enter.
B. there is more than one stable outcome to this game.
C. there is no stable outcome to this game.
D. None of these statements is true.
72.
with MiiTunes.
According to the figure, if MiiTunes charges low prices, The Rock Shop should:
A. enter the market and earn $4 million.

B. enter the market and lose $2 million.
C. not enter the market and earn $0.
D. It cannot be determined what The Rock Shop will do.
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73.
with MiiTunes.
According to the figure, if The Rock Shop enters the market, MiiTunes should:

B. charge a low price.
D. give an ultimatum to The Rock Shop.
74.
with MiiTunes.
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According to the figure, MiiTunes:
A. has a dominant strategy to charge low prices.

C. has a dominant strategy to charge high prices.
D. has more than one dominant strategy.
75.
with MiiTunes.
According to the figure, The Rock Shop:
A. should enter the market, regardless of what MiiTunes chooses to do.

B. should not enter the market, regardless of what MiiTunes chooses to do.
D. has more than one dominant strategy.
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76.
with MiiTunes.
Given the dominant strategy of MiiTunes according to the figure, we can predict that The Rock Shop:
A. will enter and enjoy profits of $4 million.

B. will enter and lose $2 million.
C. will not enter and earn $0.
D. Their actions cannot be predicted because they do not have a dominant strategy.
77.
with MiiTunes.
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The game between music stores in the figure shows us that:
A. only The Rock Shop has a dominant strategy, and so the outcome cannot be predicted.
B. only MiiTunes has a dominant strategy, and so the outcome cannot be predicted.
C. neither store has a dominant strategy, and so the outcome cannot be predicted.
78.
with MiiTunes.
If the two music stores are faced with the game in the figure, we can see that:
A. The Rock Shop has a dominant strategy, but MiiTunes does not.
B. MiiTunes has a dominant strategy, but The Rock Shop does not.
C. neither store has a dominant strategy.
D. both stores have a dominant strategy.
79. A noncooperative equilibrium is one in which:

A. the participants act independently, pursuing only their individual interests.
B. always results in a negative-negative outcome.
C. a dominant strategy exists for both players.
D. each player ignores the actions of the other players.
80. Games:
A. only have one outcome possible.
B. with noncooperative equilibriums are always negative-negative outcomes.
C. may have several stable outcomes.
D. must have a dominant strategy present to reach a stable equilibrium.
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81. Games:
A. will always have a dominant strategy.
B. are always zero sum.
C. will always have several stable outcomes.
D. None of the above are true.
82. Games:
A. only have one possible stable outcome.
B. may have noncooperative equilibriums that are positive-positive outcomes.
C. must have a dominant strategy present in order to reach an equilibrium.
83. Games with a noncooperative equilibrium:

A. always result in a negative-negative outcome.
B. always result in a positive-positive outcome.
C. can result in either a positive-positive or negative-negative outcome.
D. always result in a positive-negative outcome (zero-sum).
84. Games with a negative-negative outcome:

A. must have a noncooperative equilibrium.
B. are not necessarily the best outcome for the players involved.
C. result from players acting in their own self-interest.
85. Cooperative equilibriums:

A. are impossible to reach in real life.
B. never occur unless players act in their own self-interest.
C. never result in positive-positive outcomes.
D. can arise if a game is repeated.
86. A Nash equilibrium:

A. is reached when all players choose the best strategy they can, given the choices of all other players.
B. is a point in a game when no player has an incentive to change his or her strategy, given what the
other players are doing.
C. is a stable outcome of a game.
87. When all players in a game choose the best strategy they can, given the choices of all other players, it
is always a:
A. Nash equilibrium.
B. positive-positive outcome.
C. cooperative equilibrium.
D. negative-negative equilibrium.
88. Reaching a Nash equilibrium means that:

A. the outcome will be positive-positive.
B. a cooperative equilibrium has been reached.
C. the players have reached a stable outcome where neither would wish to change his strategy once he
finds out what the other player is doing.
D. the players have failed to reach a stable outcome because one player will always wish to change his
strategy once he finds out what the other player is doing.
89. Reaching a Nash equilibrium means that:

A. a stable outcome has been reached.
B. there is no stable outcome to the game.
C. the players will never reach a positive-positive outcome.
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D. each player has achieved their highest payoff in the game.
90. Once a Nash equilibrium has been found in a game:

A. a stable outcome is impossible.
B. the players have no incentive to change their choice.
C. the players always have an incentive to change their choice.
D. no one in the game can be made better off.
91. A commitment strategy is an agreement in which players agree to:

A. submit to a penalty in the future if they defect from a given strategy.
B. cooperate before the game begins.
C. cooperate in repeated games until someone defects.
D. None of these is a definition of a commitment strategy.
92. A commitment strategy can:

A. be used to change people's payoffs to gain cooperation.
B. allow players to reach a mutually beneficial equilibrium that would otherwise be difficult to maintain.
C. result in a positive-positive outcome.
93. For a commitment strategy to work:

A. the punishment must be so bad that it outweighs the incentive to defect in the game.
B. the punishment must occur immediately after the game is played.
C. both players must agree to a punishment.
D. no player may have a dominant strategy.
94. Cooperation in prisoner's dilemma-type games:

A. always benefits the players and the public.
B. always benefits the players, but does not always benefit the public.
C. doesn't always benefit the players, but always benefits the public.
D. doesn't always benefit the players or the public.
95. Reaching a positive-positive outcome through a commitment strategy:

A. will only benefit the players and will not serve public interest.
B. will not benefit anyone.
C. can benefit everyone.
D. will always benefit everyone.
96. When competing firms have a commitment strategy, it is called:

A. collusion.
B. competitive cooperation.
C. predatory pricing.
D. competition.
97. Collusion is a situation where businesses:

A. agree to cooperate, and the U.S. government works hard to encourage this behavior.
B. have noncooperative outcomes, because they compete outside the public eye.
C. agree to cooperate, and their behavior does not serve the public interest.
D. act in their own self-interest and ignore what the other businesses are doing.
98. Collusion:
A. occurs only when no dominant strategy is present.
B. is a cooperative outcome between competitors.
C. is observed, but economists cannot theoretically model it.
D. is a theoretical concept that is rarely observed.
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99. When businesses cooperate and agree to hold prices high, it is called ____________, and when they
reach a noncooperative equilibrium it is called _______________.
A. collusion; competition
B. competition; collusion
C. commitment strategy; collusion
D. collusion; commitment strategy
100. Collusion:
A. rarely occurs in reality.
B. never occurs in reality.
C. has not occurred in the last hundred years or so, due to government policy outlawing it.
D. is a common problem in reality.
101. Economists call a game that is played more than once:

A. a repeated game.
B. collusion.
C. a commitment strategy.
D. cooperative price play.
102. Strategies and incentives:

A. work the same whether games are played once or repeated.
B. often work quite differently when games are repeated.
C. do not change when the game is repeated.
103. In repeated games:

A. players no longer need commitment strategies to reach a mutually beneficial equilibrium.
B. players will never reach a mutually beneficial equilibrium.
C. there are no dominant strategies.
D. negative-negative outcomes are the only outcomes possible.
104. In repeated games:

A. a noncooperative outcome is more likely than in a single-round game.
B. cooperation never happens.
C. a cooperative outcome is more likely than in a single-round game.
D. players always cooperate and enjoy a mutually beneficial equilibrium.
105. Commitment strategies:

A. are not necessary to reach a mutually beneficial equilibrium in repeated games.
B. are always needed to reach a mutually beneficial equilibrium in single-round games.
C. usually fail to work.
D. are not observed in reality.
106. The tit-for-tat strategy is:

A. one in which a player in a repeated game takes the same action that his or her opponent did in the
preceding round.
B. one in which both players explicitly agree to compete in the first round of a repeated game, and if one
of them cooperates, the other will defect.
C. not effective in prisoner's dilemma type games.
107. The tit-for-tat strategy:

A. is not effective in repeated games.
B. is not possible in single-round games.
C. makes cooperation unlikely.
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108. If each player responds by imitating the action of his opponent in the previous round of a repeating
game, the players are following a:
A. repeated cooperation agreement.
B. collusion plan.
C. commitment strategy.
D. tit-for-tat strategy.
109. If one player defects in a repeated game, and his opponent is following a tit-for-tat strategy, we can
predict the opponent will:
A. defect in the next round.
B. renegotiate.
C. cooperate and try to get his opponent to follow.
D. collude.
110. If you are following a tit-for-tat strategy in a repeated game, and your opponent makes a cooperative
move, you will:
A. collude.
B. make a cooperative move in the next round.
C. price compete.
D. defect.
111. Two players who are both playing tit-for-tat can quickly find their way toward:
A. lasting cooperation.
B. noncooperative outcomes for the remaining rounds.
C. a cycle of cooperation and noncooperation, similar to a business cycle.
112. For players in a repeated-play game to achieve cooperation:

A. the players must reach an explicit agreement to cooperate.
B. the players need not explicitly state an agreement to cooperate, but must publicly display a
commitment strategy.
C. there is no need to enter into public commitment strategies or explicit agreements.
D. there is no need for players to collude.
113. Explicit agreements between businesses to keep prices high:

A. are illegal.
B. are called collusion.
C. are not in the public's best interests.
114. Which of the following is a subtle way for a company to reassure their competitors that it is
committed to a tit-for-tat strategy?
A. Setting prices below cost
B. Price-matching guarantees
C. Collusion
D. Offering a commitment strategy
115. A key to gaining cooperative behavior in a repeated game is:

A. that the game must be repeated indefinitely.
B. there must be a definitive end to the game.
C. the players must commit to always acting in their own self-interest.
D. at least one player must have a dominant strategy.
116. When one player has to make a decision before the other player, the situation is called a:
A. commitment game.
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B. simultaneous game.
C. sequential game.
D. prisoner's dilemma.
117. In sequential games, an especially important part of strategic behavior is to:

A. "think backward, work forward."
B. "think forward, work backward."
C. "think forward, act backward."
D. "think backward, act forward."
118. The process of analyzing a problem in reverse-starting with the last choice, then the second-to-last
choice, and so on, to determine the optimal strategy-is called:
A. backward induction.
B. backward thinking.
C. forward thinking.
D. backward working.
119. Backward induction involves:

A. a process of analyzing a problem in reverse.
B. thinking forward and working backward.
C. starting with the last choice and working backward to determine an optimal strategy.
120. Backward induction is a useful tool for:

A. finding an optimal strategy in a sequential game.
B. analyzing the decisions in a prisoner's dilemma-type game.
C. finding an optimal strategy in a simultaneous game.
D. Backward induction is useful in any of these games.
121. A way to summarize the actions and payoffs of a sequential game is to use a:
A. decision matrix.
B. decision tree.
C. payoff tree.
D. flowchart.
122. Using a decision tree:

A. allows a player to see his optimal strategy in a simultaneous game.
B. can help identify the dominant strategies in a prisoner's dilemma-type game.
C. allows a player to see his optimal strategy in a sequential game.
D. can help define a binding commitment strategy.
123.
9-30
This figure displays the choices being made by two coffee shops: Starbucks and Dunkin Donuts. Both
companies are trying to decide whether or not to expand in an area. The area can handle only one of
them expanding, and whoever expands will cause the other to lose some business. If they both expand,
the market will be saturated, and neither company will do well. The payoffs are the additional profits (or
losses) they will earn.
The game in the figure is shown using a:
A. decision tree.
B. decision matrix.
C. flowchart.
D. graph.
124.
9-31

D. a repeated game.
125.
According to the figure shown, if Starbucks expands in the market, then Dunkin Donuts should:
A. also expand their business.

B. not expand.
C. give an ultimatum.
9-32
126.
According to the figure shown, if Dunkin Donuts expands, then Starbucks should:
A. also expand their business.

B. not expand.
C. give an ultimatum.
127.
9-33
According to the figure shown, Starbucks:
A. has a dominant strategy to expand.

B. has a dominant strategy not to expand.
C. has first-mover advantage.
D. should wait to see what Dunkin Donuts is going to do.
128.
According to the figure shown, Dunkin Donuts:
A. should expand, regardless of what Starbucks chooses to do.

B. should not expand, regardless of what Starbucks chooses to do.
C. has first-mover advantage.
D. does not have a dominant strategy.
9-34
129.
The outcome of the game in the figure shown will be:
A. Starbucks will expand and Dunkin Donuts will not.

B. Starbucks will not expand and Dunkin Donuts will.
C. Starbucks and Dunkin Donuts will both expand.
D. neither Starbucks nor Dunkin Donuts will expand.
130.
9-35
The outcome of the game in the figure shown predicts that Starbucks will earn profits of:
A. $2 million.
B. $1 million.
C. $0 million.
D. $2 million.
131.
If the players in the figure shown act in their own self-interest, then we know that Dunkin Donuts will earn:
A. $2 million.
B. $1 million.
C. $2 million.
D. $0 million.
9-36
132.
If Starbucks and Dunkin Donuts are faced with the game in the figure shown, we can see that:
A. Starbucks has a dominant strategy, but Dunkin Donuts does not.

B. Dunkin Donuts has a dominant strategy, but Starbucks does not.
C. neither company has a dominant strategy.
D. both companies have a dominant strategy.
133. A game with a first-mover advantage is one in which:

A. the player who chooses first gets a higher payoff than those who follow.
B. the player who chooses first gets to decide if a repeated game will start with cooperation from the
beginning.
C. the first player to move determines the payoffs for the rest of the game.
134. First-mover advantage is:

A. most advantageous in a prisoner's dilemma-type game.
B. very important in one-round sequential games.
C. likely to lead to a positive-positive outcome.
135. An ultimatum game is:

A. one in which one player makes an offer and the other player has the simple choice of whether to
accept or reject.
B. one in which one player makes an offer and the other player has the choice of whether to accept or
offer a counteroffer.
C. a repeated sequential game.
D. the only game played by unions in reality.
9-37
136. An ultimatum game:
A. is a repeated game.
B. is a simultaneous move game.
C. is when one player makes an offer and the other has to accept or reject.
D. is a realistic way of modeling union negotiations.
137. First-mover advantage is:

A. more important in a repeated game than in a sequential game.
B. more important in a repeated sequential game than in a one-round sequential game.
C. more important to those who have less to bargain with.
D. more important in an ultimatum game than in a repeated game.
138. Repeated play can change the outcome in sequential games by:
A. reducing the first-mover advantage.
B. removing the incentive to cooperate.
C. making collusion more probable.
D. increasing the incentive to defect.
139. The ability to make counteroffers transforms bargaining from a game in which ___________ trumps
everything to a game in which ____________ is the winning strategy.
A. patience; first-mover advantage
B. commitment strategy; self-interested behavior
C. first-mover advantage; patience
D. first-mover advantage; cooperation
140. ___________ is a winning strategy in a game of bargaining.

A. First-mover advantage
B. Patience
C. Cooperation
D. Self-interested behavior
141. In a game of bargaining, those who _______________ will likely get the highest payoff.
A. are patient
B. are cooperative
C. have a commitment strategy
D. collude
142. In a game of bargaining, the player who is willing to:

A. be cooperative has more bargaining power and so receives a worse payoff.
B. hold out longer has more bargaining power and so receives a worse payoff.
C. hold out longer has more bargaining power and so receives a better payoff.
D. make the first move has more bargaining power and so receives a better payoff.
143. In the real world, it is likely that wage negotiations:

A. drag on for years to see which side is more patient.
B. often end with the company enjoying a larger payoff, since they can afford to be more patient.
C. often end with the worker's enjoying a larger payoff, since they are not losing as much in profit as the
company.
D. do not drag on for years.
144. In the real world, wage negotiations typically do not drag on for years:
A. because the company can simply offer the split that would eventually occur if the two sides played all
the rounds.
B. because neither a company nor employees can afford to not work for that long.
C. unless the employees play an ultimatum game using a union to negotiate.
9-38
145. Using a commitment strategy in:
A. a simultaneous game can alter payoffs, but has no effect in sequential games.
B. a simultaneous game has no effect, but can alter the payoffs and outcome of sequential games.
C. either a simultaneous or sequential game has little impact on payoffs or outcome.
D. either a simultaneous or sequential game can greatly alter the payoffs and outcome of the game.
146. By committing to reduce one's options during a sequential game, a player can force a change in his
opponents' strategy, and that commitment strategy results in a:
A. payoff that he likely would have gotten anyway.
B. cooperative equilibrium.
C. payoff that would otherwise be out of reach.
D. negative-negative outcome.
147. The famous historical example of the commitment strategy used by Cortes against the Aztecs is
sometimes referred to as:
A. "burning your boats."
B. "burning your bridges."
C. "friendly fire."
D. "putting all your eggs in one basket."
Chapter 09 Test Bank KEY

1. While everyone wants a clean environment, it can be very hard to achieve. An approach governments
could take to promote that outcome is to:
A. create social norms.
B. create and enforce strict laws and heavy fines.
C. influence individual's incentives.
D. All of these are ways governments can get the "green" behavior they want.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 09-01 Understand strategic behavior and describe the components of a strategic game.
Topic: Game Theory
2. The prisoner's dilemma is a game of strategy:

A. in which people make rational choices that lead to a less-than-ideal result for all.
B. in which people make rational choices that lead to the ideal result for all.
C. that leads everyone to be as well off as possible without making another worse off.
D. that leads people to make irrational choices that lead to the ideal result for all.
Blooms: Understand
Topic: Game Theory
Topic: Prisoners Dilemma
3. To economists, games are:

A. just recreational pursuits like chess, Monopoly, or poker.
B. any situation in which players pursue strategies designed to achieve their goals.
C. situations in which individuals act against their own interest for fun.
D. None of these statements are true.
9-39
Blooms: Understand
Topic: Game Theory
4. To economists, a game is:

A. any situation in which players pursue strategies designed to achieve their goals.
B. a trivial pursuit that should not be used to analyze the economy or its actors.
C. a way to simplify and minimize the true importance of situations like war.
Blooms: Understand
Topic: Game Theory
5. Economic games can be used to analyze decisions around which of the following situations?
A. War
B. Business
C. Environmental protection
D. All of these situations.
Blooms: Understand
Topic: Game Theory
6. The study of how people behave strategically under different circumstances is called:
A. game theory.
B. game strategy.
C. strategy optimization.
D. strategy theory.
Blooms: Understand
Topic: Game Theory
7. Game theory is:

B. used by economists to evaluate behavior in a variety of settings.
C. a useful tool in predicting strategic behavior.
Blooms: Understand
Topic: Game Theory
8. Game theory is:

B. used to predict the winners of only certain types of strategic games.
C. used to evaluate the microeconomic choices that involve probabilities of different outcomes.
D. the study of games of chance like solitaire or betting on horse races.
9-40
Blooms: Understand
Topic: Game Theory
9. When the trade-offs you face are determined by the choices someone else will make, behaving
rationally involves:
A. behaving strategically.
B. ignoring the behavior of other actors.
C. acting in a way to help others.
Blooms: Understand
Topic: Game Theory
10. Behaving strategically:

A. means recognizing that the actions of others will affect the trade-offs you face, and acting accordingly.
B. is an essential part of game theory.
C. involves rational decision making.
Blooms: Understand
Topic: Game Theory
11. Behaving strategically means:

A. evaluating decisions in which players act in their own self-interest, but the interplay of those decisions
does not exist.
B. acting to achieve a goal by withholding key information from the person with whom an exchange is
being made.
C. acting to achieve a goal by anticipating the interplay between your own and others' decisions.
D. evaluating the impact of your choices on an uninvolved third party.
Blooms: Understand
Topic: Game Theory
12. When your outcomes depend on another's choices, asking __________________ is the key to good
decision making.
A. how will others respond
B. what the wants and constraints are of those involved
C. what the trade-offs are
D. why everyone isn't already doing it
Blooms: Understand
Topic: Game Theory

A. Multiple players
B. Strategies
C. Payoffs
9-41
D. All games involve all of these things.
Blooms: Understand
Topic: Game Theory

A. Rules
B. Chance events
C. Dice
D. Cards
Blooms: Understand
Topic: Game Theory

A. Strategies
B. Someone to enforce the rules
C. Cards or dice
D. Full information
Blooms: Understand
Topic: Game Theory

A. A predictable outcome
B. Payoffs
C. Full information
D. A game master
Blooms: Understand
Topic: Game Theory
17. In games, rules:

A. define the actions that are allowed in a game.
B. need to be loosely adhered to in order to predict an outcome.
C. define the winners of a game.
D. outline the wrong choices that could be made in a game.
Blooms: Understand
Topic: Game Theory
18. In real life, people's behavior is constrained by:

A. laws of nature.
B. legislated rules of society.
C. costs of various actions.
D. All of these are rules that constrain people's behavior.
9-42
Blooms: Understand
Topic: Game Theory
19. An example of a real-life rule that might constrain people's behavior is:
A. minimum wage legislation.
B. having 24 hours in a day.
C. the earth's limited supply of oil.
D. All of these are examples of real-life rules.
Blooms: Understand
Topic: Game Theory
20. In games, strategies are:

A. the outcomes players want to achieve.
B. the same for everyone to achieve the same goal.
C. the plans of action that players follow to achieve their goals.
Blooms: Understand
Topic: Game Theory
21. In games, the strategy to reach a particular goal:

A. is the same for everyone.
B. can be different for different players and still achieve the same goal.
C. should be similar to what others have chosen to reach the same goal.
D. has begun to be documented by economists.
Blooms: Understand
Topic: Game Theory
22. In games:
A. there is only one strategy associated with each outcome.
B. there are several strategies that can achieve a single goal.
C. all strategies followed in one particular game should all be similar in order to be successful.
D. if one person's strategy is wildly different from those of others, he will typically come in first or last.
Blooms: Understand
Topic: Game Theory
23. Payoffs are:

A. the rewards that come from particular actions.
B. always monetary.
C. things that are only enjoyed by the winner.
D. bribes made to gain some advantage unfairly during a game.
9-43
Blooms: Understand
Topic: Game Theory
24. An example of a payoff in a game would be:

A. a salary.
B. winning an election.
C. having clean drinking water.
D. All of these are examples of payoffs.
Blooms: Understand
Topic: Game Theory
25. In game theory, an example of a payoff could be:

A. being the first mover in a game.
B. sharing information with a select few that others aren't privy to.
C. monetary gains made by a player.
D. giving an advantage to only one player.
Blooms: Understand
Topic: Game Theory
26. The prisoner's dilemma game can involve:

A. only two players.
B. more than two players.
C. multiple organizations.
Blooms: Understand
Learning Objective: 09-02 Explain why noncooperation is a dominant strategy in the prisoners' dilemma.
27. The prisoner's dilemma:

A. can be summarized in a payoff matrix.
B. can involve two players.
C. leads to a less-than-ideal outcome for all players.
Blooms: Understand
28. The prisoner's dilemma can be summarized in:

A. a strategy matrix.
B. a strategy tree.
C. a decision matrix.
D. a flowchart.
Blooms: Understand
9-44
29. A decision matrix:

A. summarizes the players, strategies, and payoffs associated with a game.
B. outlines the clear outcome of any strategy-based game.
C. shows only the decisions of one player.
D. is not useful in evaluating the strategic choices.
Blooms: Understand
30. When a strategy is the best one to follow no matter what strategy other players choose, it is called a:
A. golden decision.
B. dominated strategy.
C. dominant strategy.
D. zero-sum strategy.
Blooms: Understand
31. A dominant strategy is one:

A. that is the best one to follow, no matter what strategy other players choose.
B. in which a player is forced to choose given the rules of the game.
C. in which a player must choose, even though it does not optimize his outcome.
D. provides a player with the highest payoff in the game.
Blooms: Understand
32. A dominant strategy:

A. exists in every game.
B. is the best one to follow no matter what strategy other players choose.
C. is always the same for all players of a game.
D. awards the highest achievable payoff in a game.
Blooms: Understand

A. there is a dominant strategy for both players.
B. there is a dominant strategy for only one player.
C. there is no dominant strategy for either player.
D. there is a dominant strategy for a player depending on what the other player does.
Blooms: Understand
9-45
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Economics 2nd Edition Karlan Test

2. The prisoner's dilemma is a game of strategy:

3. To economists, games are:

4. To economists, a game is:

7. Game theory is:

8. Game theory is:

10. Behaving strategically:

11. Behaving strategically means:

13. All games involve which of the following?

14. All games involve which of the following?

15. All games involve which of the following?

16. All games involve which of the following?

17. In games, rules:

18. In real life, people's behavior is constrained by:

20. In games, strategies are:

21. In games, the strategy to reach a particular goal:

23. Payoffs are:

24. An example of a payoff in a game would be:

25. In game theory, an example of a payoff could be:

26. The prisoner's dilemma game can involve:

28. The prisoner's dilemma can be summarized in:

29. A decision matrix:

31. A dominant strategy is one:

32. A dominant strategy:

33. In the prisoner's dilemma game:

34. In the prisoner's dilemma:

35. In the prisoner's dilemma game:

36. In the prisoner's dilemma game:

37. In the prisoner's dilemma game:

38. The prisoner's dilemma game can be used to describe

39. The prisoner's dilemma game:

40. In the prisoner's dilemma game:

41. The players of prisoner's dilemma-type games:

The figure shown portrays a game using a:

The game in the figure shown is a version of:

A. the prisoner's dilemma.

The game in the figure shown is a version of:

A. charge a high price.

A. charge a high price.

According to the figure shown, Nike:

A. has a dominant strategy to charge a high price.

According to the figure shown, Adidas:

A. should charge a low price, regardless of what Nike chooses to do.

According to the figure shown:

A. there is no stable equilibrium to the game.

A. Nike charges a high price, and Adidas charges a low price.

A. Nike has a dominant strategy, but Adidas does not.

A. both Joe and Sarah put forth low effort.

A. the prisoner's dilemma.

The game in the figure shown is a version of:

A. put forth high effort.

A. put forth high effort.

According to the figure shown, Joe:

A. has a dominant strategy to put forth high effort.

According to the figure shown:

A. there is no stable equilibrium to the game.

The outcome of the game in the figure shown will be:

A. Joe has a dominant strategy, but Sarah does not.

68. Games that don't have a dominant strategy:

A. enter the market and earn $4 million.

A. charge a high price.

A. has a dominant strategy to charge low prices.

According to the figure, The Rock Shop: