A trust game shown in Exhibit 13.13 is a sequential prisoners' dilemma. This means that it is likely that the outcome of the game is not socially efficient. What factors could cause this equilibrium to be different in real life?
What will be an ideal response?
An important factor that makes the equilibrium socially efficient in trust games is reputational concerns; if the game is played several times, the players might attempt to develop a reputation as someone who can be trusted. If a game is repeated, it makes sense to play nicely as the other player may reciprocate your behavior. This long-run strategy may shed light on the kinds of interactions we often observe in the real world where people trust each other even when it's not in their immediate best interest to do so.
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When the interest rate is R, the formula for finding the value of a current amount $M one year from now is
A) M (1 + R/100). B) M (1 + R). C) M / (1 + R). D) M / R. E) M / (100R).
Assume the production of a good gives rise to external benefits. The government may increase efficiency by
A) subsidizing consumption of the good. B) requiring all producers of the good to be licensed. C) taxing production of the good. D) imposing taxes on the good.
Figure 3.6 illustrates a set of supply and demand curves for hamburgers. A decrease in supply and a decrease in demand are represented by a movement from:
A. point c to point a. B. point b to point d. C. point d to point a. D. point a to point b.
What would happen in the market for rice if its demand increased but the price was NOT allowed to change?
A. There would be a shortage of rice. B. The supply of rice would decrease. C. There would be a surplus of rice. D. The supply of rice would increase.