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Your car broke down while you were driving to the office one morning You took it to the nearest service center and were told by the mechanic that you need to pay $500 for the repair

Your car broke down while you were driving to the office one morning You took it to the nearest service center and were told by the mechanic that you need to pay $500 for the repair

 

Your car broke down while you were driving to the office one morning. You took it to the nearest service center and were told by the mechanic that you need to pay $500 for the repair. You are confused whether or not to trust him. If you do not trust him, you have to take it to another service center which is far and inconvenient. If you trust him, he can either cooperate or defect. If he cooperates, both of you will gain from the trade. If he defects, he will gain $500 while you will lose your money. Clearly, he will gain more by defecting rather than cooperating with you.

11) Refer to the scenario above. You should use ________ to make your decision.

A) backward induction

B) forward induction

C) mixed strategies

D) your dominated strategy

12) Refer to the scenario above. Which of the following will happen in equilibrium?

A) You will trust him and he will defect.

B) You will trust him and he will cooperate.

C) Neither of you will gain from trade.

D) Only the mechanic will gain.

13) Refer to the scenario above. Which of the following is true?

A) The equilibrium outcome in this case is Nash.

B) The equilibrium outcome in this case is socially inefficient.

C) There is no unique equilibrium in this case.

D) There are multiple equilibria in this case.

14) Refer to the scenario above. Which of the following is likely to happen if the service center has a reputation of trustworthiness?

A) You will trust the mechanic and he will cooperate.

B) You will trust the mechanic but he will defect.

C) Neither of you will gain from trade.

D) Only the mechanic will gain.

15) Refer to the scenario above. Which of the following will be true if the service center has a reputation of trustworthiness?

A) The equilibrium outcome will be Nash.

B) A unique equilibrium will not occur.

C) Multiple equilibria will occur.

D) The equilibrium outcome will be socially efficient.

Elly owns a small coffee shop. She has only one employee. One weekend, she decided to take a break from work. She is wondering whether she should trust her employee to run the shop in her absence. If she does not trust him, she would have to keep the shop closed, in which case neither she nor her employee will be able to make money. On the other hand, if she trusts him, he can either cooperate and run the shop, or he can defect and steal from the shop. If he cooperates, bothof them will earn money. If he steals from the shop, he will make more money while she will lose.

16) Refer to the scenario above. Elly should use ________ to make her decision.

A) mixed strategies

B) backward induction

C) forward induction

D) her dominated strategy

17) Refer to the scenario above. Which of the following is likely to be true in this case?

A) A dominant strategy equilibrium exists.

B) Multiple Nash equilibria occur.

C) The equilibrium outcome is socially inefficient.

D) The equilibrium outcome is Nash.

18) Refer to the scenario above. Which of the following will happen in this case?

A) Neither of them will make any money.

B) Only Elly will make money.

C) Elly will trust, but her employee will defect.

D) Elly will trust, and her employee will cooperate.

19) Refer to the scenario above. Which of the following is likely to happen if Elly is known to be vengeful?

A) Neither of them will make money.

B) Only Elly will make money.

C) Only Elly's employee will make money.

D) Both Elly and her employee will earn money.

20) Refer to the scenario above. Which of the following will hold true if Elly is known to be vengeful?

A) A Nash equilibrium will occur.

B) Multiple equilibria will occur.

C) There will be no Nash equilibrium.

D) A socially inefficient equilibrium will occur.

abhinav behal 15-Feb-2020

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