EBK MICROECONOMICS
2nd Edition
ISBN: 8220103679701
Author: List
Publisher: YUZU
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Chapter 17, Problem 11Q
To determine
Meaning of bargaining power and the two factors that influence it.
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One of the critical moments early on in the The Lord of the Rings trilogy is the meeting in Rivendell to decide who should take the One Ring to Mordor. Gimli the Dwarf won’t hear of an Elf doing it, whereas Legolas (who is an Elf) feels similarly about Gimli. Boromir (who is a Man) is opposed to either of them taking charge of the Ring. And then there is Frodo the Hobbit, who has the weakest desire to take the Ring but knows that someone must throw it into the fires of Mordor. In modeling this scenario as a game, assume there are four players: Boromir, Frodo, Gimli, and Legolas. (There were more, of course, including Aragorn and Elrond, but let’s keep it simple.) Each of them has a preference ordering, shown in the following table, as to who should take on the task of carrying the One Ring.
Of the three non-Hobbits, each prefers to take on the task himself. Each would prefer that other than themselves and Frodo, no one should take the Ring. As for Frodo, he doesn’t really want to do it…
What is prisoners dilemma? and how it works?
Explain in detail
What is the discount factor in bargaining games without impatience?
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- Try the following variant of the Let’s Make a Deal game. Again one of the three boxes contains a prize, but now there are two players, 1 and 2. Assume Player 1 picks Box A and Player 2 picks Box B. The host (who again has perfect knowledge) opens Box B, which contains junk, and Player 2 leaves the show. Player 1 can either stay with Box A or switch to Box C. Using Bayes’ theorem, show that now it does not pay Player 1 to switch, that is, the probability Player 1 will win with Box C is 1/2, the same as the probability Player 1 will win by staying with Box A.arrow_forwardIf there is only one buyer and one seller meeting to exchange, then any price that they agree upon must be between the willingness to pay of the buyer and the willingness to sell of the seller.True or Falsearrow_forwardHow does the concept of the Prisoner's Dilemma illustrate the challenges of cooperation and rational decision-making in economic scenarios?arrow_forward
- The author describes the case of the "Prisoner's Dilemma" to demonstrate which of the following? Competition and the pursuit of unfettered self-interest result in greater efficiency, and benefits everyone involved equally. Effective policy can place incentives in such a manner that the very pursuit of unfettered self-interest of the prisoners results in the desired outcome of getting both to confess to the crime. Just as in the case of the prisoner's dilemma, the pursuit of unfettered self-interest will cause the fishermen who fish Atlantic swordfish (a common resource) to harvest them wisely and limit the number of fish each fisherman catches. Thus the fishermen's ability to pursue unfettered self-interest will allow the population of swordfish to remain stable and even grow. The fishermen trust each other to behave responsibly and in the interest of the common good.arrow_forwardConsider a game where each player picks a number from 0 to 60. The guess that is closest to half of the average of the chosen numbers wins a prize. If several people are equally close, then they share the prize. The game theory implies that (A) all players have dominant strategies to choose 0 (B) all players have dominant strategies to choose 30 (C) there is a Nash equilibrium where all players pick 0 (D) there is a Nash equilibrium where all players pick positive numbers Behavioral data in such games suggests that (A) most subjects choose 0; (B) most subjects choose 30;(C) common answers include 30, 15, 7.5, and 0; (D) most subjects use randomization.arrow_forwardTrue or false? If a game has a Nash equilibrium, that equilibrium will be the equilibrium that we expect to observe in the real world. False. People don’t always act in the way that a Nash equilibrium requires. People don’t always make the necessary calculations and they take into account the outcome of others. False. A Nash equilibrium is based on very strict assumptions that rarely hold in the real world. No real-world situation leads to a Nash equilibrium. True. As long as people are rational and have their own self-interest at heart, real-life games will result in the Nash equilibrium. True. Nash’s theory of equilibrium outcomes was derived from real-world interactions. The theory holds true for almost all real-world scenarios.arrow_forward
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