12. Consider a game where each player picks a number from 0 to 60. The guess that is closest to half ofthe average of the chosen numbers wins a prize. If several peopleare equally close, then they share theprize. 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 13. 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. Can you help me answer number 13 please?

We are going to use game theory concepts to answer this question.The given game is assumed to be played by all the rational players. If rationality is implicitly dealing with complete form of information then the game will have the unique nash equilibrium at 0. This game can be explained with the help of above assumption as below. As all the players are rational then no one will choose a number greater than 50 because for any selected number by each individual the average will never go beyond 50. All the players know this fact. Keeping this information in mind, all the players being rational they choose number less than or equal to 25. When all the players choose number less than 50 the average of selection would be less than or equal to 25. In the similar fashion, all the players rule out possible outcomes and realise that there is only unique nash equilibrium possible when all chooses 0. Now this structure is valid and plausible when we have an assumption of all rational players. But according to behavioral economics, it is hardly possible to believe that all the players are rational at a given time; therefore, we have to discount irrationality while dealing with real life events similar to this game. Therefore we have observed that, when such games are simulated with real life players there is no unique outcome is observed which is only due to irrationality present in the market. We have seen mixed responses as an outcome for such games. Hence option C is a correct response for Q/13).

Answered: 12. Consider a game where each player…

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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12. Consider a game where each player picks a number from 0 to 60. The guess that is closest to half ofthe average of the chosen numbers wins a prize. If several peopleare equally close, then they share theprize. The game theory implies that

(A) all players have dominant strategies to choose 0

(B) all players have dominant strategies to choose 30

(D) there is a Nash equilibrium where all players pick positive numbers

13. 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.

Can you help me answer number 13 please?

Definition Definition Economic decision-making framework that analyzes how different players optimize their outcomes with given pay-offs corresponding to their available strategies. The assumptions of game theory are: The number of players or competitors are finite/limited; All participants are rational The rules of the game are known to every player; and Each participant has a finite set of actions. A common way in which game theory is presented as an ( m x n ) matrix in which m represents the strategies of row player and n represents the strategies of column player. There are several limitations of game theory: Many businesses have a large number of competitors, and selecting an optimal strategy in these circumstances is difficult; Real-life business operating environments are full of uncertainty and difficult to model as a game theory; and The assumption of rationality and utility maximization isn't always an accurate portrayal of human nature.

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