You have been assigned to create a new TV game show, and you have an interesting idea that you call, “I WANT TO BE A MILLIONAIRE.” The basics are: 1) two contestants; 2) the show begins with each contestant being given $1 million (!); and then 3) they begin playing a game that can increase or decrease that $1 million. You worry that the initial outlay of $2 million will stun your producers, so you decide to prepare them with a simpler version of your game that you call: “I WANT $3.” There are four steps in this simpler game: There are two contestants/opponents (who do not know each other and cannot communicate with each other during the game). Each player is given $3 at the start of the game. Independently and simultaneously, each player must choose whether they want to add $0, $1, $2 or $3 to their initial stake of $3. Doing so reduces their opponent’s award by $0, $2, $4, or $6, respectively. Each player knows that their payoff at the end of the game is based on their initial $3, their choice of an additional amount, and the reduction due to their opponent’s choice. Make sure you’re clear that step III means that, whatever one player gains, the other loses twice that amount. Consequently, a player’s final prize amount is: (initial $3) + (their choice of $0, $1, $2, or $3) – 2 x (opponent’s choice of $0, $1, $2, or $3). Finally, If a player ends up with a negative prize, they understand that they must pay that amount. Below: a) Create the ”I WANT $3” game matrix, showing players, actions, & payoffs. b) Identify the game’s Nash equilibrium strategies and payoffs for the players. c) Identify any strictly dominant strategies for the players.

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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6) You have been assigned to create a new TV game show, and you have an interesting idea that you call, “I WANT TO BE A MILLIONAIRE.” The basics are: 1) two contestants; 2) the show begins with each contestant being given $1 million (!); and then 3) they begin playing a game that can increase or decrease that $1 million.

You worry that the initial outlay of $2 million will stun your producers, so you decide to prepare them with a simpler version of your game that you call: “I WANT $3.” There are four steps in this simpler game:

There are two contestants/opponents (who do not know each other and cannot communicate with each other during the game).
Each player is given $3 at the start of the game.
Independently and simultaneously, each player must choose whether they want to add $0, $1, $2 or $3 to their initial stake of $3. Doing so reduces their opponent’s award by $0, $2, $4, or $6, respectively.
Each player knows that their payoff at the end of the game is based on their initial $3, their choice of an additional amount, and the reduction due to their opponent’s choice.

Make sure you’re clear that step III means that, whatever one player gains, the other loses twice that amount. Consequently, a player’s final prize amount is:

(initial $3) + (their choice of $0, $1, $2, or $3) – 2 x (opponent’s choice of $0, $1, $2, or $3).

Finally, If a player ends up with a negative prize, they understand that they must pay that amount.

Below:
a) Create the ”I WANT $3” game matrix, showing players, actions, & payoffs.
b) Identify the game’s Nash equilibrium strategies and payoffs for the players.
c) Identify any strictly dominant strategies for the players.

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