Exercises based on Dixit, Skeath and Reiley, Chapter 4 (3 rd
Edition) Solved exercises
Dominance
Q.S1 If a player has a dominant strategy in a simultaneous-move game, then she is sure to
get her best possible outcome. True or False? Explain and give an ex
Exercises based on Dixit, Skeath and Reiley, Chapter 4 (3 rd
Edition) Solved exercises
Dominance
Q.S1 If a player has a dominant strategy in a simultaneous-move game, then she is sure to
get her best possible outcome. True or False? Explain and give an ex
Exercises based on Dixit, Skeath and Reiley, Chapter 3 Solved
exercises
Q.S1 Suppose two players, Hansel and Gretl, take part in a sequential-move game. Hansel
moves first, Gretl moves second and each player moves only once.
a) Draw a game tree for a game
What is the MPC?
Learning Objectives
1.
2.
3.
4.
Use linear regression to establish the
relationship between two variables
Show that the line is the line of best fit in
precise sense
Show that the line links the conditional
expectations of the variables
A
Question 1: Matching Pennies
Two players, Row and Column, each has a penny and must secretly turn the penny to
heads or tails. The players then reveal their choices simultaneously.
If the pennies match (both heads or both tails) Row keeps both pennies, so
Exercises based on Dixit, Skeath and Reiley, Chapter 3 Solved
exercises
Q.S1 Suppose two players, Hansel and Gretl, take part in a sequential-move game. Hansel
moves first, Gretl moves second and each player moves only once.
a) Draw a game tree for a game
Stackelberg Equilibrium
Heinrich Freiherr von Stackelberg (October 31, 1905 - October 12, 1946)
was a German economist who contributed to game theory
and industrial organization and is known for the Stackelberg leadership model.
Firms set their quantities
PRACTICE EXERCISE 1
Consider a market with firms all producing the same output. The demand function for
the given output is given by 421 = where = + + is the total supply.
Each firm has a total cost function given by = 4.46 +
1. Characterize the Cournot
How Low Can House Prices
Fall?
(Quite a bit)
Learning Outcomes
1.
2.
3.
Expand the regression model to allow for
multiple X variables
Formalise the hypothesis test procedure
using test statistics
Look at more general hypothesis tests
a)
b)
4.
Multiple coe
Advanced Microeconomics
Homework 1
Considder the following model. There are two players and one prize. The players' valuations
of the prize are different from eachother: V1>V2>0.
Players' scores equal their effort (ei) and whichever player has the higher
CAPM
Capital Asset Pricing Model
Price of an asset is not only related to the
expected return from the asset but also to
the variance of the asset and how it
contributes to the rest of the portfolio.
Example
Asset X:
If A happens (99% chance)
Payoff: -
If risk adverse:
We dont like risk
Main Principle of Finance
Two risky stocks
Event A: with a 50% chance
Event B: with a 50% chance
If A happens
If B happens
Firm 1
-6%
+8%
Firm 2
+8%
-6%
Main Principle of Finance
Two risky stocks
Event A: with a 50% ch
ECON 30290
Advanced Microeconomics
Information
Your Host
Dr Ivan Pastine
Office: D210 Newman Building
Email: Ivan.Pastine@ucd.ie
Times
Tuesday 12:00 Theatre M Arts
Thursday 11:00 Theatre M Arts
Office
Hour
Thursday
12:00 1:00
And by appointment
Advance
Efficiency Wage Theory (Stiglitz)
One explanation for unemployment
1
Efficiency Wage Theory
Assumes perfectly competitive markets
Workers can work or shirk
Asymmetric Information
Monitoring is costly
Small probability of getting caught if shirk
2
Effi
Market Signaling (Spence)
Sellers using signals to convey
information to buyers about the products
quality
How do workers let employers know they
are productive so they will be hired?
2
Market Signaling
Signal
To be effective, a signal must be easier for
Moral Hazard
Moral hazard occurs when the insured
party whose actions are unobserved can
affect the probability or magnitude of a
payment associated with an event
Ex-ante, Ex-post Probabilities not the same
2
Moral Hazard
Alters the ability of markets to
Markets with Asymmetric
Information
2001 Nobel Prize
Akerlof (Market for Lemons)
Stiglitz (Efficiency Wages)
Spence (Signalling)
Asymmetric Information
2
Asymmetric information
Some parties know more than others
a seller or producer versus the buyer
Mana
Questions from Dixit, Skeath and Reilley
Chapter 2 (solutions at end of document)
Q1. Which of the following situations describe GAMES and which describe DECISIONS (which
can be taken without concern for reaction or response from others). In each case, in