BUSI 758X: GAMES OF STRATEGY & INCENTIVES FALL 2013

INDIVIDUAL ASSIGNMENT 7
NAME _________________________________________

Please print this document and write in your responses by hand. (Do not type.) Bring the stapled hard-copy to the next class. You may wish to keep a copy of your answers to follow the class discussion of the assignment.

In the space below, please write out and sign the University of Maryland honor pledge. (I pledge on my honor that I have not given or received any unauthorized assistance on this assignment.)

In this assignment, you are asked to specify technically feasible strategic moves in various situations (regardless of whether the mover can acquire credibility for the move). When specifying a commitment, express it in the form I will play X. When specifying a threat or a promise, express it as If you play X, then, I will play Y. If a particular type of move is not available, then write None. Do not leave a blank.

Problem 1 Experts in international relations proposed several game models to capture the military rivalry between the U.S. and the USSR in the 1970s and 1980s. One particular model uses a simultaneous-move game with the following payoff table:
Restrained Aggressive USSR Restrained Aggressive 4, 3 1, 4 3, 1 2, 2

U.S.

(a) The equilibrium of this game is ____________________________ with payoffs _________. (b) Specify the strategic moves available to the U.S.S.R. Commitments Promises Threats (c) Specify the strategic moves available to the U.S. Commitments Promises Threats

Problem 2 Consider the following simultaneous move game:

Up Down Player B Left Right 4, 3 3, 4 2, 1 1, 2

Player A

(a) The equilibrium of this game is ___________________________ with payoffs __________. (b) Specify the strategic moves that can be used by Player A. Commitments Promises Threats (c) Specify the strategic moves that can be used by Player B. Commitments Promises Threats (d) The answer in part (c) is to be expected for a simple reason. Explain (in one sentence). (e) Preemptive Strategic Moves: The strategic move by Player A in part (b) results in a new (manipulated) equilibrium that is better for Player A and worse for Player B. The goal of a preemptive strategic move by Player B is to improve on this new equilibrium that would result if Player A was allowed to play her strategic move. In light of the strategic move available to Player A, specify all preemptive strategic moves that can be used by Player B. Commitments Promises Threats

Problem 3 Consider the simultaneous-move capacity expansion game between Honda and Toyota, where each firms strategy set consists of: No Expansion, Small Expansion or Large Expansion. Payoffs are in billions of dollars.
No Exp Small Large No Exp $18, $18 $20, $15 $17, $9 Toyota Small $15, $20 $16, $16 $12, $8 Large $9, $17 $8, $12 $0, $0

Honda

(a) The equilibrium of this game is ___________________________ with payoffs __________. (b) Specify the strategic moves that can be used by Honda. Commitments

Promises

Threats

Problem 4 Consider the following Assurance game between two colleagues: Player B Shirk Work Shirk 2, 2 3, 1 Player A Work 1, 3 4, 4 (a) The equilibria of this game are: _________________________________________________ (a) For Player A, which is the least desirable equilibrium? _______________________________ (b) Specify the strategic moves that can be used by Player A. Commitments Promises Threats Problem 5: Conflicted Ranked Coordination Up Down Left 2,1 0,0 Player B Right 0,0 1,2

Player A

Specify the strategic moves available to Player A. Commitments Promises Threats Problem 6: Aligned Ranked Coordination Up Down Left 2,2 0,0 Player B Right 0,0 1,1

Player A

Specify the strategic moves available to Player A. Commitments Promises Threats

Problem 7 Every promise has a converse clause that is usually not explicitly mentioned because it consists of simply playing a best response. (For example, in the Prisoners Dilemma, the promise If you Cooperate, I will Cooperate has the implicit converse clause On the other hand, if you Cheat, I will Cheat. This latter clause is typically not mentioned, because Cheat is the best response to Cheat.) Similarly, every threat has an implicit converse clause that is usually not mentioned because it consists of simply playing a best response. However, sometimes, the converse clause does not consist of playing a best response. In such a case, it must be explicitly mentioned. Usually, this results in a promise-threat combo. Consider the following game of Chicken between two firms. Firm B Remain Exit Remain 1, 1 4, 2 Firm A Exit 2, 4 3, 3 (b) The equilibria of this game are: _________________________________________________ (c) List all strategic moves that can be used by Firm A. Commitments Promises Threats