Microeconomics Assignment 7

1. A. There are 4 strategies for this game. This is due to the fact that there are two players each with faced with two choices for a total of 4 strategies. They are as follows:

Both player tell the truth

Both players lie

Player 1 tells the truth and player 2 lies

Player 2 tells the truth and player 1 lies.

The payoffs for the game are as follows:

Both players answer honestly and both receive $100

One player answers honestly and the other lies. The player who answers honestly gets nothing and the liar gets $500.

Both players lie and each receives $50.

B. Player 1

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C. In this game, both the equilibrium is found where both players will lie. Each player’s best choice is to lie because if they lie and the other person tells the truth, then they will receive the largest payout. However, they will still get paid if the other player lies. If they told the truth, then they risk getting nothing if the other person lies. Therefore, both will lie and the equilibrium payout will be $50 each.

D. This game is very similar to the prisoner’s dilemma. In the prisoner’s dilemma, each player gets a worse equilibrium outcome because they cannot cooperate with the other player to ensure the mutually better outcome. Because they cannot trust the other player, they choose only what is best for them, and both prisoners end up with a worse payoff then if they had cooperated. This is similar to the above game, in that the player cannot trust the other to cooperate, and therefore cannot guarantee the $100 each. It is better for players to lie and act for themselves in each case. This results in a mutually less favorable outcome, much like the prisoner dilemma.

2. A. There are 4 strategies for this game, since there are two players with two options each. They are as follows:

Soapy Inc. complies while Suddies Inc. cheats

Suddies Inc....