ECON600 Managerial Economics

1. What is game theory and why can it make you a better manager?

2.Explain what a Nash equilibrium is using an example from everyday life.

3.Use topics we learned in game theory to explain why it is hard for states in the U.S. to coordinate on when to fully re-open for business.

4. Why is the fundamental tension in games of incomplete information?

5. Explain the difference between a pooling equilibrium and a separating equilibrium, and explain why these types of equilibria appear in games of incomplete information.
 
6. Can you think of an example where a pooling equilibrium is preferred to a separating equilibrium?

7.When you apply for jobs, why do you have to signal to employers? Why is this a problem for employ- ers, and what might might they do in response?

 

8. How do you know which signals you should invest in/focus on? (Hint: when are signals credible?)

9. Remember the work we did on price discrimination? Explain a) why price discrimination is a prob- lem of incomplete information (be sure to explain who knows or doesn’t know what) and b) how firms screen to try solving the problem.

 

10. Use ideas we explored in this class to explain a) why fraud is so prevalent (e.g., fake news elections, snake oil cures for COVID19, counterfeit luxury goods in secondary markets) and b) general ap- proaches societies/markets take to reducing fraud.
 

You and your writing partner have moved to Hollywoo to pitch your new show Opportunity Cops, a gritty crime drama about two economics professors who quit academia to become detectives in the Boston Police Department – only to find out they are in over their heads...

11. Word of your show is setting Tinseltown on fire and every studio is competing for your signatures. Producers wine-and-dine you. One group takes you out to dinner at the hot new pita joint, It’s a Wrap!; another takes your co-author out to the BBQ stalwart Burger, She Wrote. It’s a classic showbiz conundrum: with all this money on the line, both of you could tell producers you equally share the credit for the idea (C ), or both of you could claim all the credit alone (D). On the way to the dinner, you jot down this payoff matrix:

(a) What is the Nash Equilibrium of this game and why?

 

(b) Suppose you and your co-author can talk and agree what to tell investors before the dinners. Will this change the Nash Equilibrium in a one-shot game? What about a repeated game in which you don’t know how many investors you have to talk to before securing funding?

(c) Even if your series is picked up, you worry about your co-author dropping hints around town that they are the real brains in the team. Of course, if they did, you would be forced to follow the advice of the working title of your coloring book Grim Trigger and do the same. So if your series was picked up, would it better to know when exactly how many seasons it would run? Or would it be better to be uncertain? Explain.
 

12. Congratulations Opportunity Cops is a success and the studio bought a second season. Now you just have to write it. No pressure. After a week of partying to clear your minds, you and your co-author identify two directions you can take the plot. One is totally original and, if the focus group is right, comes with a big payoff. The other is generic and will leave viewers feeling “blah”. But the worst outcome is that each of of you commits to a different plot: magic only happens when both of you are committed to the same idea.
So, once again, you update your notes:

(a) What are the Nash equilibria?

(b)Which (if any) equilibrium(a) is/are risk dominant? (Use math.)

(c)What minimum belief do you need in your co-author to commit to the original storyline?

 

(d) What can your partner do to make you secure in your belief that you will commit to the original storyline?
 

13. Fame is getting to your heads, and Hollywoo is a small town. Pretty soon you catch wind of a rumor: your co-author came back from Burning Man convinced they are genius and should ditch you. It’s just a rumor, you tell yourself. Still, it comes at a bad time: the studio is canceling the show because they want you to put together a spinoff about one of the detectives, Professor Bayes. For now the studio is calling the shows A and B . (They’re producers, not writers.) Which one should you commit to? Well, it depends on which co-author came back from Burning Man the nice one, or the mean one.