Question

Identify whether the following statements are true or false.   In game​ theory, the exact payoffs of players are always​ known: ▼ True False .   Game theory is best described as a model of the real​ world: ▼ False True .   In most​ games, players have a dominant​ strategy: ▼ True False .   Players must consider the responses of other players when making​ decisions: ▼ True False .   Game theory is always accurate at predicting​ real-world outcomes: ▼ False True .

Answer 1

1. False. This is not always the case. Take an example of a Cournot Duopoly where each firm has a best response function but the exact payoffs are unknown.

2. True. Findings from game theory can be applied to the real world but a lot of assumptions would have to be relaxed. But in general, game theory is loosely modeled on the real world.

3. False. This is not always the case. In some cases, players might not have a dominant strategy and would have a mixed strategy choosing their strategy using probabilities. Take an example of the below game.

Player 1/2	A	B
A	1,1	3,3
B	4,4	2,2

Neither player has a dominant strategy.

4. True. This is the basic idea of game theory where players choose their strategies according to the other players' strategies.

5. False. This is not always true. Take an example of a Stackelberg Duopoly game. It is observed in game theory that smaller firms tend to follow the larger firm. But in real world, the smaller world may indulge in a price war to gain market share.