Question

For each of the following statements, say whether it is true or false. Give a brief argument and/or an example to explain your answer.

(a) "In some sequential move games there is a first-mover advantage; in others there is a second-mover advantage."

(b) "Game theory shows how the rational behavior by individual players leads to outcomes that are socially optimal".

Answer 1

a) The statement is true , in sequential games the players move in sequence i.e there will be a first mover who will initiate the game , though this first mover will decide the direction in which the game will proceed it is not always an advantageous position and can lead to challenging situation also of which the benefit accrued will go to the second mover.

For example ; Consider an example of a game of company which makes underwear boxers and briefs , lets take two scenarios:

1.The company has the first mover advantage , it has identified the market gap or the need for boxers and briefs and will make profits from it and will generate a major market share , this will discourage the second player from entering into the market .

2. The company fails in the market , the consumers no longer wear boxer briefs and underwear and this fashion choice has been replaced by wearing some other fashion accessory , thus the second mover can take advantage of this and thus can earn profits and success in the market.

b) False , Rational behaviour by individuals doesn't always lead to outcomes that are in general beneficial for the society or are socially optimal .

Lets take up an example of companies selling make up products , the average women would be tempted to use these make up products as it enhances the perceived beauty by concealing all the so called "imperfections" thus enhancing beauty , any rational women would use this make up product as everyone would want to add or enhance their beauty relatively , thus we end up in a situation in which there is questionable or no benefit to the society.

Any rational consumer behaves to maximise his/her consumption , this may benefit the society at large by generating employment but maynot be beneficial for the environment which is getting depleted of the resources.