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Game Theory Lab Assignment 2016

Microeconomics II Section B & C

1.

Complete this assignment in a group of 4 students. The assignment is worth 250 marks = 2.5% of your
Each group will be allocated a question on which it will have to present on Monday, 4th April.
Look at the worksheets Prisoners Dilemma (a) and (b)
Left

Right

Top

\$0.80, \$0.80

\$0.00, \$1.00

Bottom

\$1.00, \$0.00

\$0.30, \$0.30

a.

What is the Nash Equilibrium of the game?

b.

Looking at the average results, given in the table below, please discuss how the students behavior
corresponded with the results expected by the theory.
Summary Choice Proportions,
Rounds 1-5
Row
Decision

Top

Bottom

Proportion

0.36

0.64

column
Decision

Left

Right

Proportion

0.34

0.66

c.

Re-do the table from part b, for each round individually. Did the participants seem to learn? In other
words, did the results get closer to the Nash equilibrium as the rounds progressed? Explain, citing data

d.

Now, look again at the results for each pair of students. Were there any outliers? In other words, were
there some pairs of players for which the results differed significantly from the Nash equilibrium
prediction? Explain, citing data from the spreadsheet.

e.

How do your results compare to those in the research article, Behavioral Development Economics:
Lessons from field labs in the developing world by Cardenas and Carpenter and Norms of Cooperation,
Trust, Altruism, and Fairness: Evidence from Lab Experiments on Pakistani Students by Chaudhry and
Saleem? How are different across genders?
.

2.

Left

Right

Top

\$0.80,
\$0.40

\$0.40,
\$0.80

Bottom

\$0.40,
\$0.80

\$0.80,
\$0.40

a.

What is the Nash Equilibrium of the game in mixed strategies?

b.

Looking at the average results, given in the table below, please discuss how the students behavior
corresponded with the results expected by the theory.
Summary Choice Proportions,
Rounds 6-10
Row
Top
Bottom
Decision
Proportion

0.5

0.5

column
Decision

Left

Right

Proportion

0.38

0.62

c.

Re-do the table from part b, for each round individually. Did the participants seem to learn? In other
words, did the results get closer to the Nash equilibrium as the rounds progressed? Explain, citing data

d.

Now, look again at the results for each pair of students. Were there any outliers? In other words, were
there some pairs of players for which the results differed significantly from the Nash equilibrium
prediction? Explain, citing data from the spreadsheet.

3.

Look at the worksheets Battle of Sexes (a) and (b).

Left

Right

Top

\$0.00,
\$0.00

\$0.25,
\$0.75

Bottom

\$0.75,
\$0.25

\$0.00,
\$0.00

a.

What are the Nash Equilibria of the game in pure and mixed strategies?

b.

Looking at the average results, given in the table below, please discuss how the students behavior
corresponded with the results expected by the theory.
Summary Choice Proportions,
11-15
Row
Top
Bottom
Decision
Proportion

0.46

0.54

column
Decision

Left

Right

Proportion

0.33

0.67

c.

Re-do the table from part b, for each round individually. Did the participants seem to learn? In
other words, did the results get closer to the Nash equilibrium as the rounds progressed? Explain,

d.

Now, look again at the results for each pair of students. Were there any outliers? In other words,
were there some pairs of players for which the results differed significantly from the Nash
equilibrium prediction? Explain, citing data from the spreadsheet.

e.

Again, look at the results for each pair of students. Were there some pairs of players that tended
toward one of the pure strategy equilibria? Explain, citing data from the spreadsheet.

4.

Look at the worksheet UD.

Game # 1:
"You are taking part in an experiment. You are one of two players. You will not know the identity of the
other player nor will they know your identity. There are 20 rupees in this bag and you are responsible for
proposing how it should be divided between you and the other player. The second player has no option but
to accept your proposal. The game will only be played one time. Do you understand?" "How do you
propose the 20 rupee be split?"
Game # 2:
"You are taking part in an experiment. You are one of two players. The person you will play against is your
friend. Choose.
Okay.
Now there are 20 rupees in this bag and you are responsible for proposing how it should be divided
between you and your friend. The second player has no option but to accept your proposal. The game will
only be played one time. Do you understand?" "How do you propose the 20 rupee be split?"
a. What is the Nash Equilibrium of game 1 and 2 according to theory?

5.

b.

Do the results from your class match the predicted Nash? How is the behavior different across
genders?

c.

How do your results compare to those in the research article, Behavioural Development
Economics: Lessons from field labs in the developing world by Cardenas and Carpenter and
Norms of Cooperation, Trust, Altruism, and Fairness: Evidence from Lab Experiments on
Pakistani Students by Chaudhry and Saleem?

Look at the worksheet UD

Game # 3:
"You are taking part in an experiment. You are one of two players. You will not know the identity of the
other player nor will they know your identity. There are 20 rupees in this bag and you are responsible for
proposing how it should be divided between you and the other player. The second player can then either
accept or reject your proposal. If it is rejected neither player receives anything. If the second player
accepts, the money is split according to the first proposal. The game will only be played one time. Do you
understand?" "How do you propose the 20-rupee be split?"
Game # 4:
"You are taking part in an experiment. You are one of two players. The person you will play against is your
friend. Choose.
Okay.
There are 20 rupees in this bag and you are responsible for proposing how it should be divided between
you and the other player. The second player can then either accept or reject your proposal. If it is rejected
neither player receives anything. If the second player accepts, the money is split according to the first
proposal. The game will only be played one time. Do you understand?" "How do you propose the 20-rupee
be split?"
a. What is the Nash Equilibrium of game 3 and 4 according to theory?
b.

Do the results from your class match the predicted Nash? How is the behavior different across
genders?

c.

How do your results compare to those in the research article, Behavioural Development
Economics: Lessons from field labs in the developing world by Cardenas and Carpenter and
Norms of Cooperation, Trust, Altruism, and Fairness: Evidence from Lab Experiments on
Pakistani Students by Chaudhry and Saleem?

6.

Look at the worksheets Trust (a) and (b).

Pass/Keep Decisions: One of you will be designated to move first, and that person will begin by receiving
a specified amount of money \$10.00. The first mover will decide how much money (if any) to pass on to
the other person and how much (if any) to keep. All money passed gets multiplied by 3 before it is received
by the second mover, who then decides how much (if any) to keep and how much (if any) to pass back to
the first mover. These pass/keep decisions determine earnings for the round, as explained below.
Earnings: The first mover earns the amount kept initially plus the amount that is passed back by the
second mover. All money passed by the first mover is multiplied by 3. The second mover earns the amount
kept at this stage.

7.

a.

What is the Nash Equilibrium of this game?

b.

How do your results compare to those in the research article, Behavioural Development
Economics: Lessons from field labs in the developing world by Cardenas and Carpenter and
Norms of Cooperation, Trust, Altruism, and Fairness: Evidence from Lab Experiments on
Pakistani Students by Chaudhry and Saleem?

c.

How did the results evolve over the five rounds? Were there any inconsistencies in how players
behaved? Any outliers?

Look at the worksheets Centipede (a) and (b).

Treatment 1: Rounds 1 - 7
A
B

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Automatic

Stop
\$2.00 for
A
\$0.50 for
B

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\$1.00 for
A
\$4.00 for
B

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\$6.00 for
A
\$1.50 for
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\$2.00 for
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\$8.00 for
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\$10.00
for A
\$2.50 for
B

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\$3.00 for
A
\$12.00 for
B

a.

What is the Sub-game Perfect Nash Equilibrium of this dynamic game?

b.

Looking at the results in the spreadsheet, please discuss how the students behavior corresponded
with the results expected by the theory. Explain, citing data from the spreadsheet.

c.

Look at each round individually. Did the participants seem to learn? In other words, did the
results get closer to the Nash equilibrium as the rounds progressed? Explain, citing data from the

d.

Now, look again at the results for each pair of students. Were there any outliers? In other words,
were there some pairs of players for which the results differed significantly from the Nash
equilibrium prediction? Explain, citing data from the spreadsheet.

8.

Look at the worksheets Monopoly (a) and (b) and Cournot (a) and (b).
The demand function (for all 14 rounds) is:
P = 13 Q
Where Q is aggregate quantity in the market.
There are no fixed costs, and marginal cost is constant (for all 12 rounds), and given as:
AC=MC = 1
a.
b.

c.

d.
e.

f.

g.

9.

In rounds 1-5, each student is a monopoly. What is the profit maximizing quantity, price, and
profit per firm?
Look at each round individually. Did the participants seem to learn? In other words, did the
results get closer to the profit maximizing quantity as the rounds progressed? Explain, citing data
Now, look again at the results for each group. Were there any outliers? In other words, were there
some players for which the results differed significantly from the Nash equilibrium prediction?
Explain, citing data from the spreadsheet.
In rounds 6 12, we have a duopoly (two firms). What is the Nash equilibrium output quantity,
price, and profit per firm?
Looking at the results in the spreadsheet, please discuss how the students behavior (averaged over
rounds 6-12) corresponded with the results expected by the theory. Explain, citing data from the
spreadsheet. The average quantity per round is listed in the column just to the right of the Round
#.
Look at each round individually. Did the participants seem to learn? In other words, did the
results get closer to the Nash equilibrium as the rounds progressed? Explain, citing data from the
Now, look again at the results for each pair of students. Were there any outliers? In other words,
were there some pairs of players for which the results differed significantly from the Nash
equilibrium prediction? Explain, citing data from the spreadsheet.

Look at the worksheet UD.

a. What is the Nash Equilibrium of the guessing game? Explain the game in detail.
b. How do your results compare to the Nash prediction? Was there learning over the 3 rounds?

10. Discuss the literature presented in the research article, Behavioural Development Economics: Lessons
from field labs in the developing world by Cardenas and Carpenter and Norms of Cooperation, Trust,
Altruism, and Fairness: Evidence from Lab Experiments on Pakistani Students by Chaudhry and Saleem.
Explain the relevance of game theory in development and institutional economics.