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 people are 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 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.

We are going to use a few game theory concepts to answer this question.

Answered: Consider a game where each player picks…

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter8: Game Theory

Section: Chapter Questions

Problem 8.6P

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Consider 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

(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.

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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