Question

Question 2: True or false (and brieáy explain why)

(a) In game theory, the equilibrium of any given game is the outcome that maximizes the players joint well-being.

(b) It is always good to have the option to move Örst because the Örst-mover can choose his or her preferred outcome for the game.

Answer 1

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(a) True - This is because if there is no joint well-being then one of the players will always look to apply a different strategy.

(b) False - First mover game can have its disadvantages as shown below.

Here if Amy chooses Up, Bernard will optimally choose Zag. If Amy chooses Down, Bernard will optimally choose Zig. In both cases, Bernard will end up with a payoff of 1 while Amy will have a payoff of –1. However, if we switch the order so that Bernard moves first and Amy moves second, then Amy will end up with a payoff of 1 while Bernard will have a payoff of –1. Therefore, this type of game has a second-mover advantage.