1.

A game is characterized by
a. Multiple players/ agents
b. Maximization of profit/ utility
c. A set of rules
d. All of these
Ans d

2. The Nash equilibrium of a game is defined as

a. An intersection of best responses
b. A self-enforcing agreement
c. An outcome from which no player has an incentive to deviate unilaterally
d. All of these
Ans d

𝐶 𝐷

𝐶 −3, −3 0, −4

𝐷 −4,0 −1, −1

3. Consider the prisoner’s dilemma game as described in the lectures. The game table is
given above, with the rows and columns representing actions of 𝑃1 , 𝑃2 , respectively.
The value of 𝑈2 𝐷, 𝐶 for this game is
a. 0
b. −4
c. −3
d. −1
Ans b

4. Consider the prisoner’s dilemma game as described in the lectures. The game table is
given above, with the rows and columns representing actions of 𝑃1 , 𝑃2 , respectively.
The Nash equilibrium for this game is
a. 𝐶, 𝐶
b. 𝐶, 𝐷
c. 𝐷, 𝐶
d. All of these
Ans a

5. Consider the prisoner’s dilemma game as described in the lectures. The game table is
given above, with the rows and columns representing actions of 𝑃1 , 𝑃2 , respectively.
The Pareto optimal outcome(s) for this game is(are)
a. 𝐷, 𝐷
b. 𝐶, 𝐷
c. 𝐷, 𝐶
d. All of these
 Ans d

6. Two people 𝑃1 , 𝑃2 are engaged in a joint project. Each person 𝑖 puts in the effort
𝑥𝑖 ∈ 0,1,2,3,4 , which costs her 𝑐 𝑥𝑖 = 2𝑥𝑖2 . The outcome of the project is worth
𝑓 𝑥1 , 𝑥2 = 6𝑥1 𝑥2 , which is split equally between the two people regardless of their
effort levels. What is 𝑈2 2,3 ?
a. 0
b. 10
c. −9
d. −18
Ans b

7. Two people 𝑃1 , 𝑃2 are engaged in a joint project. Each person 𝑖 puts in the effort
𝑥𝑖 ∈ 0,1,2,3,4 , which costs her 𝑐 𝑥𝑖 = 2𝑥𝑖2 . The outcome of the project is worth
𝑓 𝑥1 , 𝑥2 = 6𝑥1 𝑥2 , which is split equally between the two people regardless of their
effort levels. What is(are) the best response(s) of 𝑃2 to action 𝑥1 = 2 of 𝑃1 ?
a. Only 𝑥2 = 1 but not 𝑥2 = 2
b. Only 𝑥2 = 2 but not 𝑥2 = 1
c. Both 𝑥2 = 1 and 𝑥2 = 2
d. Neither 𝑥2 = 1 nor 𝑥2 = 2
Ans c

8. Two people 𝑃1 , 𝑃2 are engaged in a joint project. Each person 𝑖 puts in the effort
𝑥𝑖 ∈ 0,1,2,3,4 , which costs her 𝑐 𝑥𝑖 = 2𝑥𝑖2 . The outcome of the project is worth
𝑓 𝑥1 , 𝑥2 = 6𝑥1 𝑥2 , which is split equally between the two people regardless of their
effort levels. Which of the following outcomes 𝑥1 , 𝑥2 are Pareto optimal?
a. Only 3,3 , 3,4 , 4,3 , but not 4,4
b. Only (3,4), 4,3 , 4,4 but not 3,3
c. Only 3,4 , 4,3 , but not 4,4 or 3,3
d. Only (3,3), 4,4 , but not 3,4 or 4,3
Ans b

9. Second-Price Auction: Two individuals, 𝑃1 and 𝑃2 , submit bids 𝑏1 , 𝑏2 , respectively,

to compete in an auction in order to obtain a valuable object. Each player bids in a
sealed envelope without knowing the bid of the other player. The bids must belong to
the set 0,5,10,15,20 . The object is worth 15 to 𝑃1 and 10to 𝑃2 . The highest bidder
wins the object. In case of a tie, 𝑃1 gets the object. Consider a second price auction
where the winner pays a price 𝑝equal to the bid of the other player. If the value of the
object to the winner is 𝑥, her payoff is 𝑥 − 𝑝. The payoff to the loser is 0. What is
the complete set of best responses of 𝑃2 to bid 𝑏1 = 15of 𝑃1 ?
a. 5,10
b. 0,5,10
c. 0,5,10,15
d. 0,5,10,15,20
Ans c
10. Second-Price Auction: Two individuals, 𝑃1 and 𝑃2 , submit bids 𝑏1 , 𝑏2 , respectively,
to compete in an auction in order to obtain a valuable object. Each player bids in a
sealed envelope without knowing the bid of the other player. The bids must belong to
the set 0,5,10,15,20 . The object is worth 15 to 𝑃1 and 10to 𝑃2 . The highest bidder
wins the object. In case of a tie, 𝑃1 gets the object. Consider a second price auction
where the winner pays a price 𝑝equal to the bid of the other player. If the value of the
object to the winner is 𝑥, her payoff is 𝑥 − 𝑝. Which of the following outcomes
𝑏1 , 𝑏2 is NOT a Nash equilibrium of this game?
a. 20,20
b. 10,10
c. 5,15
d. 20,10
Ans a