Here’s a solution to the exercises based on game theory concepts:

S1: Determining if situations describe games

(a) A group of grocery shoppers in the dairy section, with each shopper choosing a
flavor of yogurt to purchase

• Classification: Not a game.

• Reason: Each shopper's choice does not affect the decisions of others. There is no
strategic interaction or mutual dependence among the shoppers.

(b) A pair of teenage girls choosing dresses for their prom

• Classification: Game.
• Reason: Their choices may influence each other (e.g., avoiding the same dress to
avoid duplication). The decisions involve some level of strategic interaction.

(c) A college student considering what type of postgraduate education to pursue

• Classification: Not a game.

• Reason: The decision is independent, with no strategic interaction with other players
or entities.

(d) The New York Times and the Wall Street Journal choosing the prices for their
online subscriptions this year

• Classification: Game.
• Reason: Both entities are competing for subscribers. Their pricing strategies will
directly influence the other’s outcome, making it a strategic decision.

(e) A presidential candidate picking a running mate

• Classification: Game.
• Reason: The choice involves strategic considerations, such as balancing the ticket to
appeal to a broader electorate, considering the potential moves of opponents, and
anticipating public response.

S2: Classifying the strategic games

(a) Rock-Paper-Scissors

• Moves: Simultaneous.
• Zero-Sum: Yes, as one player’s win is the other’s loss.
• Repeated Game: Can be repeated, but each round is independent.
• Perfect Information: Yes, as players know the rules but not the opponent's choice.
• Fixed Rules: Yes, the rules are fixed.
 • Cooperative Agreements: Not possible, as it’s a competitive game.

(b) Roll-call voting

• Moves: Sequential, as votes are cast one after another.

• Zero-Sum: No, it’s not zero-sum since the winner represents a collective choice.
• Repeated Game: Likely a one-time game in a specific context.
• Perfect Information: No, voters may not know how others will vote until after they
act.
• Fixed Rules: Yes, rules of voting are predetermined.
• Cooperative Agreements: Possible, as voters might form coalitions or alliances to
influence outcomes.

(c) Sealed-bid auction

• Moves: Simultaneous, as bids are submitted at the same time.

• Zero-Sum: No, as the winner gains the item, and the seller profits.
• Repeated Game: Usually a one-time game.
• Perfect Information: No, bidders do not know others’ valuations or bids.
• Fixed Rules: Yes, rules of the auction are set beforehand.
• Cooperative Agreements: Not possible, as bids are sealed, preventing collusion.

Here’s the solution to the exercises in the second image based on game theory principles:

S3: Evaluating the statement

"A game player would never prefer an outcome in which every player gets a little profit
to an outcome in which he gets all the available profit."

• Answer: The statement is false.

• Reason: In certain cases, a player might prefer a scenario where all players receive
some profit (e.g., in a repeated or cooperative game) to maintain goodwill, foster
long-term collaboration, or prevent retaliation in future interactions. Maximizing
individual profit might not always align with the player's overall objectives, especially
in dynamic or repeated games.
S5: Game theory as a predictive vs. prescriptive tool

• Predictive Tool: Game theory predicts how rational players might behave in a
strategic interaction by analyzing payoffs, strategies, and equilibria.
o Example: Predicting market competition between two firms.
• Prescriptive Tool: Game theory offers guidance on what actions players should take
to maximize their payoffs or achieve their goals.
o Example: Advising firms on optimal pricing strategies in a duopoly.

Real-World Use Cases:

• Predictive tools are critical in economics, political science, and negotiations where
player actions must be forecasted.
• Prescriptive tools are important in business strategy, law, and public policy to design
optimal approaches.

U1: Classifying situations as games

(a) A party nominee for president of the United States choosing private or public
campaign financing

• Classification: Game.
• Reason: The decision impacts and is influenced by the opponent's choice, making it a
strategic decision.

(b) Frugal Fred receives a $20 gift card for music and decides between individual songs
or albums

• Classification: Not a game.

 • Reason: The decision is independent and does not involve strategic interaction with
others.

(c) Beautiful Belle replying to online dating profile messages

• Classification: Game.
• Reason: Strategic interactions arise as Belle’s replies influence potential suitors’
responses and behavior.

(d) NBC distributing television shows on Amazon, iTunes, or NBC

• Classification: Game.
• Reason: The distribution choice involves negotiation and competition with platforms,
creating strategic interdependence.

(e) China choosing tariffs on American imports

• Classification: Game.
• Reason: The decision directly affects and is influenced by the United States' trade
policies, making it a strategic game.

U2: Classifying strategic games

(a) Rock-Paper-Scissors (same as earlier)

• Moves: Simultaneous.
• Zero-Sum: Yes.
• Repeated Game: Can be repeated.
• Imperfect Information: Yes (players don’t know the opponent’s choice).
• Fixed Rules: Yes.
• Cooperative Agreements: Not possible.

(b) Roll-call voting (same as earlier)

• Moves: Sequential.
• Zero-Sum: No.
• Repeated Game: Likely one-time.
• Imperfect Information: Yes (voters may not know future votes).
• Fixed Rules: Yes.
• Cooperative Agreements: Possible.

(c) Sealed-bid auction (same as earlier)

• Moves: Simultaneous.
 • Zero-Sum: No.
• Repeated Game: Usually one-time.
• Imperfect Information: Yes (bidders don’t know others’ bids).
• Fixed Rules: Yes.
• Cooperative Agreements: Not possible.

Here’s a solution to the questions in the uploaded image using game theory principles:

Question U4:

Alice, Bob, and Confucius are playing a game involving flipping coins with the following
rules:

1. Alice wins if all coins are heads or all tails.

2. Bob wins if two heads and one tail land.
3. Confucius wins if one head and two tails land.

Each player contributes $1 to the pot, and the winner gets $3 (net payment: $2), while the
losers lose $1.

(a) Probability that Alice will win and probability that she will lose

• Total possible outcomes for three coin tosses = 23=82^3 = 8:

o {HHH,HHT,HTH,HTT,THH,THT,TTH,TTT}\{HHH, HHT, HTH, HTT,
THH, THT, TTH, TTT\}
• Alice wins if:
o All heads (HHHHHH) or all tails (TTTTTT).

Winning outcomes for Alice = {HHH,TTT}\{HHH, TTT\}

Probability P(Alice wins)=28=14P(\text{Alice wins}) = \frac{2}{8} = \frac{1}{4}.

• Alice loses if any other outcome occurs (HHT,HTH,HTT,THH,THT,TTHHHT, HTH,

HTT, THH, THT, TTH).

Losing outcomes for Alice = 66

Probability P(Alice loses)=68=34P(\text{Alice loses}) = \frac{6}{8} = \frac{3}{4}.

(b) Alice's expected payoff

Payoff calculation:
 • Net gain if Alice wins = $2.
• Net loss if Alice loses = −1-1.

Expected payoff (Alice)=P(win)⋅(gain)+P(lose)⋅(loss)\text{Expected payoff (Alice)} =

P(\text{win}) \cdot (\text{gain}) + P(\text{lose}) \cdot (\text{loss}) =(14⋅2)+(34⋅(−1))=
\left(\frac{1}{4} \cdot 2\right) + \left(\frac{3}{4} \cdot (-1)\right) =0.5−0.75=−0.25= 0.5 -
0.75 = -0.25

Alice's expected payoff = −$0.25-\$0.25.

(c) Probability that Confucius will win and probability that he will lose

• Confucius wins if there are exactly one head and two tails (HTT,THT,TTHHTT,
THT, TTH).

Winning outcomes for Confucius = {HTT,THT,TTH}\{HTT, THT, TTH\}

Probability P(Confucius wins)=38P(\text{Confucius wins}) = \frac{3}{8}.

• Confucius loses if any other outcome occurs (HHH,TTT,HHT,HTH,THHHHH, TTT,

HHT, HTH, THH).

Losing outcomes for Confucius = 55

Probability P(Confucius loses)=58P(\text{Confucius loses}) = \frac{5}{8}.

(d) Confucius's expected payoff

Payoff calculation:

• Net gain if Confucius wins = $2.

• Net loss if Confucius loses = −1-1.

Expected payoff (Confucius)=P(win)⋅(gain)+P(lose)⋅(loss)\text{Expected payoff

(Confucius)} = P(\text{win}) \cdot (\text{gain}) + P(\text{lose}) \cdot (\text{loss})
=(38⋅2)+(58⋅(−1))= \left(\frac{3}{8} \cdot 2\right) + \left(\frac{5}{8} \cdot (-1)\right)
=0.75−0.625=0.125= 0.75 - 0.625 = 0.125

Confucius's expected payoff = +$0.125+\$0.125.

(e) Is this a zero-sum game?

• A zero-sum game means that the sum of all players' payoffs equals zero.

For the given game:

 • Alice's expected payoff = −0.25-0.25.
• Confucius's expected payoff = +0.125+0.125.
• Bob's expected payoff (can be calculated similarly) balances the total.

Since the game redistributes the $3 in the pot with no external income/loss:

Total payoff (Alice + Bob + Confucius)=0\text{Total payoff (Alice + Bob + Confucius)} = 0

Yes, this is a zero-sum game.

Question U5:

The statement: “When one player surprises another, this indicates that the players did not
have common knowledge of the rules.”

Example illustrating the statement

In chess, if one player uses a rarely known opening (e.g., the Orangutan Opening), the other
player may be surprised. This indicates the second player did not have full knowledge of the
opening theory, showing an asymmetry in understanding the rules' application.

Counterexample

In poker, a player might bluff by betting aggressively despite having weak cards. The rules of
poker are fully known to all players, but the element of surprise arises from strategy, not from
an asymmetry in rule knowledge.

Conclusion: The statement is not always true. Strategic surprises can occur even with
common knowledge of the rules.

Let me know if you'd like more detailed explanations!