Lesson test: Credible threats and commitment

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Credible threats and commitment

1.[2p]
A subgame perfect equilibrium is a strategy profile that

induces a Nash equilibrium in every subgame, including those never reached

Correct

is a Nash equilibrium of the whole game

The answer is: induces a Nash equilibrium in every subgame, including those never reached

gives every player their highest payoff

The answer is: induces a Nash equilibrium in every subgame, including those never reached

uses only pure strategies

The answer is: induces a Nash equilibrium in every subgame, including those never reached

2.[3p]
In the entry game, why is (Out, Fight) a Nash equilibrium but not a subgame perfect one?

The entrant stays out, so the incumbent's plan is never tested, but in the subgame after entry the incumbent would accommodate

Correct

The incumbent earns less than the entrant

The answer is: The entrant stays out, so the incumbent's plan is never tested, but in the subgame after entry the incumbent would accommodate

The entrant has a dominant strategy

The answer is: The entrant stays out, so the incumbent's plan is never tested, but in the subgame after entry the incumbent would accommodate

Fighting is not a strategy in the subgame

The answer is: The entrant stays out, so the incumbent's plan is never tested, but in the subgame after entry the incumbent would accommodate

3.[3p]
Staying out pays the incumbent 10, fighting an entrant pays 2 and accommodating pays 5. Capacity costing $k$ adds 5 to the payoff from fighting. At what $k$ is the incumbent exactly indifferent between buying it and not?

CorrectNot quite: 5

4.[2p]
Because the capacity is a sunk cost by the time entry occurs, its price has no effect on whether the incumbent would actually fight.

True

Correct

False

The answer is: True

5.[2p]
A commitment device works only if it

is observable by the other side and cannot be quietly reversed

Correct

is expensive enough to be taken seriously

The answer is: is observable by the other side and cannot be quietly reversed

reduces the committing player's payoff in every outcome

The answer is: is observable by the other side and cannot be quietly reversed

is announced before the game begins

The answer is: is observable by the other side and cannot be quietly reversed

6.[2p]
A chain store faces one potential entrant in each of 20 towns in sequence. In subgame perfect equilibrium, in how many towns does it fight?

CorrectNot quite: 0

7.[3p]
Which repairs restore deterrence in the chain store setting?

Select all that apply

Removing the known final town, so the sequence has no last round to unravel from

Correct

A small chance that the chain is the kind that simply enjoys fighting

Correct

Making the payoff from fighting larger than the payoff from accommodating

Correct

Increasing the number of towns

The answer is: Removing the known final town, so the sequence has no last round to unravel from, A small chance that the chain is the kind that simply enjoys fighting, Making the payoff from fighting larger than the payoff from accommodating

8.[3p]
Match each commitment device to how it works.

Sinking the boats
Penalty clause
Delegation to an agent
Brinkmanship

replacing your preferences with someone else's
making a preference into a verifiable obligation
raising the chance of an outcome nobody would choose
removing your own option to retreat

Show the answer

Sinking the boats: removing your own option to retreat Penalty clause: making a preference into a verifiable obligation Delegation to an agent: replacing your preferences with someone else's Brinkmanship: raising the chance of an outcome nobody would choose

9.[1p]
Every subgame perfect equilibrium is a Nash equilibrium.

True

Correct

False

The answer is: True

1.[2p] A subgame perfect equilibrium is a strategy profile that

2.[3p] In the entry game, why is (Out, Fight) a Nash equilibrium but not a subgame perfect one?

3.[3p] Staying out pays the incumbent 10, fighting an entrant pays 2 and accommodating pays 5. Capacity costing k adds 5 to the payoff from fighting. At what k is the incumbent exactly indifferent between buying it and not?

4.[2p] Because the capacity is a sunk cost by the time entry occurs, its price has no effect on whether the incumbent would actually fight.

5.[2p] A commitment device works only if it

6.[2p] A chain store faces one potential entrant in each of 20 towns in sequence. In subgame perfect equilibrium, in how many towns does it fight?

7.[3p] Which repairs restore deterrence in the chain store setting?

8.[3p] Match each commitment device to how it works.

9.[1p] Every subgame perfect equilibrium is a Nash equilibrium.

1.[2p]
A subgame perfect equilibrium is a strategy profile that

2.[3p]
In the entry game, why is (Out, Fight) a Nash equilibrium but not a subgame perfect one?

3.[3p]
Staying out pays the incumbent 10, fighting an entrant pays 2 and accommodating pays 5. Capacity costing $k$ adds 5 to the payoff from fighting. At what $k$ is the incumbent exactly indifferent between buying it and not?

4.[2p]
Because the capacity is a sunk cost by the time entry occurs, its price has no effect on whether the incumbent would actually fight.

5.[2p]
A commitment device works only if it

6.[2p]
A chain store faces one potential entrant in each of 20 towns in sequence. In subgame perfect equilibrium, in how many towns does it fight?

7.[3p]
Which repairs restore deterrence in the chain store setting?

8.[3p]
Match each commitment device to how it works.

9.[1p]
Every subgame perfect equilibrium is a Nash equilibrium.