Game Theory and Strategic Behavior Flashcards
7 cards from real AP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Game Theory and Strategic Behavior flashcards as text
What is a Nash Equilibrium in game theory?
Answer: A situation where no player can benefit by unilaterally changing their strategy
A Nash Equilibrium is a stable outcome in which no individual player can increase their payoff by changing only their own strategy, given the strategies of all other players.
In the classic prisoner's dilemma, what is each prisoner's dominant strategy?
Answer: Defect (confess) regardless of what the other prisoner does
Defecting is a dominant strategy because confessing yields a better personal outcome whether the other prisoner stays silent or also confesses.
Which of the following best describes the market structure of an oligopoly?
Answer: A few large firms that are mutually interdependent in their pricing and output decisions
An oligopoly consists of a small number of large firms whose decisions significantly affect one another, creating strategic interdependence.
How is a dominant strategy identified in a payoff matrix?
Answer: It is the strategy that yields the highest payoff regardless of what the other player chooses
A dominant strategy is one that produces a higher payoff for a player than any alternative strategy, no matter what strategy the opponent selects.
Why does collusion among oligopolists tend to be unstable over time?
Answer: Each individual firm has an incentive to cheat by secretly lowering its price to capture more customers
Although collusion raises industry profits, each firm can earn even more by secretly undercutting the agreed price, giving every member an incentive to defect from the agreement.
The kinked demand curve model of oligopoly assumes that rival firms will:
Answer: Match price decreases but ignore price increases
Under the kinked demand model, rivals match price cuts (fearing loss of market share) but do not follow price increases (hoping to attract customers away), creating a kink that explains price rigidity.
In the prisoner's dilemma, why do both players end up with a suboptimal outcome even though both are acting rationally?
Answer: Each player rationally follows their dominant strategy, producing a collectively worse outcome than cooperation would have achieved
Individual rationality leads each player to defect, but when both defect they reach an outcome that is worse for both than if they had both cooperated — a core insight of the prisoner's dilemma.