Assignment 1

NPTEL MOOC Game Theory 2015
Assignment 1
A. Consider the following game of "divide the dollar". There is a dollar to be split between two
players. Player 1 makes an offer (an offer by Player 1 specifies how much he would like
Player 2 to have). Without observing Player 1s offer, Player 2 specifies what would be an
acceptable offer. Players choice has to be in increments of 25 cents, i.e., 0 cents, 25 cents, 50
cents, 75 cents, and 100 cents. If Player 1s offer is at least as large as what is acceptable to
Player 2, then there is an agreement. Otherwise we say that there is no agreement. If there
is an agreement Player 2 gets the amount offered by Player 1, while Player 1 gets the rest
of the dollar. If there is no agreement neither player gets anything.
1. Write down the strategic form of this game. In this game, what is the value of
a)
b)
c)
d)
50
25
0
75
Ans (c)
2. In the game described above in Problem A, what is the value of

a)
b)
c)
d)
50
25
0
75
Ans (d)
3. In the game described above in Problem A, What is the best response of Player 1 to action
50 by player 2
a)
b)
c)
d)
25
50
75
0
Ans (b)
4. In the game described above in Problem A, which of the following is a Nash Equilibrium
a) (25,25)
b) (75,0)
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Assignment 1
c) (50,25)
d) (50,75)
Ans (a)
5. In the game described above in Problem A, which of the following is NOT a Pareto optimal
outcome
a)
b)
c)
d)
(25,25)
(25,100)
(75,50)
(100,75)
Ans (b)
6. In the game described above in Problem A, action 75 of Player 1, dominates which of his
other actions. Remember, action
of player i dominates another action , if
yields a
higher or equal payoff in comparison to , for every possible action
of the other player.
a)
b)
c)
d)
25
50
100
0
Ans (c)
7. Consider the following game. Each of 15 students simultaneously announces a number in

the set f 0; 1; 2; :::; 100g. A prize of INR 1 is split equally between all students whose
number is closest to 1= 3 of the class average. Find the NE of this game.
a)
b)
c)
d)
All choose 100

All choose 50
Seven choose 0 and Eight choose 100
All choose 0
And (d)
8. In the above game, is the Nash Equilibrium also Pareto Optimal

a) Yes
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Assignment 1
b) No
c) Not necessarily
d) Cannot conclude
Ans (a)
B. Consider the following model of price competition. Two firms set prices in a market whose
demand curve i.e. number of units sold is given by the equation Q = 6 p where p is the
lower of the two prices per unit. If firm 1 is the lower priced firm, then it is firm 1 that
meets all of the demand; conversely, the same applies to firm 2 if it is the lower priced firm.
In case they post the same price they each get half the market. Prices can only be quoted in
dollar units, such as 0, 1, 2, 3, 4, 5, or 6 dollars. Suppose, furthermore, that costs of
production are zero for both firms, and each firm aims to maximize its own profits.
1. Write down the strategic form of this game. In this game, the value of
a)
b)
c)
d)
is,
6
8
9
0
Ans (b)
2. In the game described above in Problem B, the quantity

a)
b)
c)
d)
is
10
4.5
8
9
Ans (d)
3. In the game described above in Problem B, the best response of player 1 to action 3 (i.e.
setting price per unit = 3) of player 2 is,
a)
b)
c)
d)
2
3
4
1
Ans (a)
4. Which of the following is a Nash Equilibrium of the game described above in Problem B
a) (2,2)
b) (3,3)
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Assignment 1
c) (2,3)
d) (1,1)
Ans (d)
5. Which of the following is a Nash Equilibrium of the game described above in Problem B
a)
b)
c)
d)
(4,4)
(6,6)
(0,0)
(5,5)
Ans (c)
6. The action of per unit

by player 1, dominates which other action(s) of his. Remember,
action
of player i dominates another action , if
yields a higher or equal payoff in
comparison to , for every possible action
of the other player.
a)
b)
c)
d)
5
6
Both
Neither
Ans (c)
C. P1 has two options for investing his Rs. 1000. Invest in bonds (B which gives him certain
return of 10% or invest it in a risky venture (V) which if successful returns 20% and on
failure returns 0%. The venture is successful if and only if total investment is at least Rs.
2000. There is one other potential investor in the venture P2 who is in the same situation
as P1. They cannot communicate and have to make the investment decision without
knowing the decisions of each other. Formulate the game table for this game.
1. Which of the options below is a Nash equilibrium for this game.
a)
b)
c)
d)
(B,B)
(V,V)
Both
Neither
Ans (c)
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NPTEL MOOC Game Theory 2015

2. In the game described above in Problem A, what is the value of

NPTEL MOOC Game Theory 2015

7. Consider the following game. Each of 15 students simultaneously announces a number in

All choose 100

8. In the above game, is the Nash Equilibrium also Pareto Optimal

NPTEL MOOC Game Theory 2015

2. In the game described above in Problem B, the quantity

NPTEL MOOC Game Theory 2015

6. The action of per unit

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