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ECN214 Games and Strategies – 2014
Questions and Answers
Part A
Question 1
a. One outcome Pareto dominates another if it is weakly preferred by all players and strictly
preferred by at least one. That is, the payoff for one player is greater for another strategy and the
payoff for the other player is at least as large as that payoff.
b. An outcome is Pareto efficient (or Pareto optimal) if it is not Pareto dominated by any other
outcome. That is, there are no other payoffs which have outcomes which are at least as big for both
players.
Question 2
a. Alice has 4 decisions to make in the final stage of the game. The number of possible combinations
of these are then 2 * 2 * 2 * 2 = 16. She has two possible decisions at the beginning of the game, and
therefore she possesses 16 * 2 = 32 possible pure strategies.
b.
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To find the Subgame Perfect Equilibrium using backwards induction, we first find player A’s
preferred outcomes at the last stage of the game. These are:
Working backward from these, B would prefer 4 over 2, and 1 over 0. Therefore, they would choose
the following actions:
A prefers 2 to 0. Therefore, they would choose b as their first action:
ECONOMICS HELP, visit LondonEconomicsTutors.co.uk.
Discounted prices compared to all other websites
ECN214 Games and Strategies – 2014
Questions and Answers
Part A
Question 1
a. One outcome Pareto dominates another if it is weakly preferred by all players and strictly
preferred by at least one. That is, the payoff for one player is greater for another strategy and the
payoff for the other player is at least as large as that payoff.
b. An outcome is Pareto efficient (or Pareto optimal) if it is not Pareto dominated by any other
outcome. That is, there are no other payoffs which have outcomes which are at least as big for both
players.
Question 2
a. Alice has 4 decisions to make in the final stage of the game. The number of possible combinations
of these are then 2 * 2 * 2 * 2 = 16. She has two possible decisions at the beginning of the game, and
therefore she possesses 16 * 2 = 32 possible pure strategies.
b.
, FOR MORE HIGH-QUALITY PAST PAPER MODEL ANSWERS, ONLINE TUTORING AND
ECONOMICS HELP, visit LondonEconomicsTutors.co.uk.
Discounted prices compared to all other websites
To find the Subgame Perfect Equilibrium using backwards induction, we first find player A’s
preferred outcomes at the last stage of the game. These are:
Working backward from these, B would prefer 4 over 2, and 1 over 0. Therefore, they would choose
the following actions:
A prefers 2 to 0. Therefore, they would choose b as their first action:
