Multiple Choice Questions
Economics: Game Theory and Behavioral Economics
Topic: Game Theory
Grade: 12
Question 1:
Which of the following best describes the concept of Nash equilibrium?
a) A situation where all players in a game are satisfied with their outcomes
b) A situation where no player can improve their outcome by unilaterally changing their strategy
c) A situation where players collude to achieve a higher joint payoff
d) A situation where players have perfect information about the game
Answer: b) A situation where no player can improve their outcome by unilaterally changing their strategy
Explanation: Nash equilibrium is a concept in game theory that refers to a stable state in which no player can unilaterally change their strategy to achieve a better outcome. In other words, each player is doing the best they can, taking into account the actions of the other players. For example, consider a prisoner\’s dilemma game where two suspects can either confess or remain silent. If both players confess, they both receive a moderate sentence, but if one player confesses and the other remains silent, the confessing player receives a reduced sentence while the silent player receives a harsher sentence. In this case, confessing is the Nash equilibrium because neither player can improve their outcome by unilaterally changing their strategy.
Question 2:
Which of the following is an example of a zero-sum game?
a) A trade agreement that benefits both countries involved
b) A negotiation where both parties compromise to reach a mutually beneficial outcome
c) A poker game where one player wins all the chips
d) A cooperative project where individuals work together to achieve a common goal
Answer: c) A poker game where one player wins all the chips
Explanation: A zero-sum game is a type of game where the total payoff for all players involved remains constant, meaning that one player\’s gain is exactly balanced by another player\’s loss. In a poker game, the total amount of chips remains constant, and the winner takes all the chips, resulting in a zero-sum outcome. For example, if Player A wins 100 chips, Player B loses 100 chips, resulting in a net payoff of 0.
Topic: Behavioral Economics
Grade: 12
Question 1:
Which of the following biases refers to the tendency to overestimate the likelihood of events that are easily remembered?
a) Anchoring bias
b) Availability bias
c) Confirmation bias
d) Endowment effect
Answer: b) Availability bias
Explanation: Availability bias is a cognitive bias that occurs when people rely on immediate examples that come to mind when evaluating the probability of an event or the frequency of a phenomenon. This bias is influenced by the ease with which examples can be remembered or recalled. For example, if someone hears news reports about several plane crashes, they may overestimate the likelihood of a plane crash occurring because those examples are readily available in their memory. Another example could be when someone perceives that a certain city has a high crime rate simply because they can recall news stories about crimes in that city, even if the crime rate is statistically low.
Question 2:
Which of the following best explains the concept of loss aversion?
a) The tendency to focus on the initial anchor point when making decisions
b) The tendency to prefer immediate gratification over delayed rewards
c) The tendency to avoid losses more strongly than seeking equivalent gains
d) The tendency to conform to social norms and expectations
Answer: c) The tendency to avoid losses more strongly than seeking equivalent gains
Explanation: Loss aversion is a cognitive bias that describes the tendency for individuals to feel the pain of losses more strongly than the pleasure of equivalent gains. People are typically more motivated to avoid losses than to pursue gains, even when the potential outcome is the same. For example, studies have shown that individuals are more likely to take risks to avoid losing money compared to taking risks to potentially gain the same amount of money. This bias can also be observed in scenarios such as selling stocks, where individuals may hold onto declining stocks in the hope of avoiding a loss, even if it means missing out on potential gains.