1. In the Traveler’s Dilemma, each of two people chooses a number between 180 and 300. Each is paid the lower of the two numbers, but the person who chooses the higher number must pay an amount x to the person who chose the lower number. In one case, x = 5, while in the other case x = 180. What difference would you expect between choices with the two values of x? a. Higher choices when x = 5. b. Higher choices when x = 180. c. Little or no difference. d. Impossible to predict.

1. In the Traveler’s Dilemma, each of two people chooses a number between 180
and 300. Each is paid the lower of the two numbers, but the person who chooses
the higher number must pay an amount x to the person who chose the lower
number. In one case, x = 5, while in the other case x = 180. What difference
would you expect between choices with the two values of x?
a. Higher choices when x = 5.
b. Higher choices when x = 180.
c. Little or no difference.
d. Impossible to predict.
2. Consider these statements about communication in experiments.
1. Chat communication is usually more effective than written simple signals (A,
B, etc.).
2. Friendly appeals to mutual interest and payoff dominance are effective.
3. Promises often affect beliefs and actions.
4. A promise is not worth the paper it is printed on.
Which of these are true?
a. 1 and 2
b. 1 and 3
c. 2 and 3
d. 1, 2, and 3
3. A treasure is hidden under one of the four boxes below. A person gets two
guesses to find the treasure. What do you think is the most common first
guess made?
A B A A
a. The box on the left.
b. The box next to the left.
c. The box next to the right.
d. The box to the right.
Bonus half-point: Which guess about this first guess is most common on this
test today? How common is it ($2 if within 5 percentage points of the correct
number)?

4. Consider the game below, which has been discussed in class:

A B
A 3, 1 0,0
B 0, 0 1, 3
The payoffs for the Row player are first in each cell, with the payoffs for the
Column player second. Which of these statements are true?
I. Simple A or B messages prior to play will not affect behavior.
II. Simple A or B messages prior to play will be more effective in
achieving coordination on positive payoffs when one player sends a
message.
III. Simple A or B messages prior to play will be more effective in
achieving coordination on positive payoffs when both players send
(simultaneous) messages.
IV. Behavior changes from that in simultaneous play when it is known that
one person makes their choice first, even when this choice is not
disclosed before the second person’s choice.
a. I
b. II and IV
c. II
d. III
e. IV

5 You can buy a company that has a value between 0 and 100, inclusive, with a
uniform distribution. The company knows its value and will accept an offer if
and only if the offer is at least as large as the actual value. Because you are a
better manager, the company would be worth 50% more under your ownership.
Which number is closest to the optimal bid?
a. 100
b. 75
c. 50
d. 25
e. 0
Bonus question: If the range of the value is shifted to be between 20 and 120, what is
the optimal bid? Can you prove or demonstrate this?