#5) Assume you have two students who are roommates. One of the students is prett

Q: 5) Assume you have two students who are roommates. One of the students is prett

b. The Smart Student will choose Maximum Effort, and the Not-so-Smart Student will choose Minimum Effort (Outcome #2) 7) a. The Smart Student will choose Maximum Effort, and the Not-so-Smart Student will choose Maximum Effort (Outcome #1)

ID: 1092384 • Letter: #

Question

#5) Assume you have two students who are roommates. One of the students is pretty smart, but the other one is not exactly the sharpest tack in the bag (a nice way of saying "dumb"). The two students are taking an economics course together, and there's an upcoming exam. The not-so-smart student suggests the two have a study session. They agree to separately prepare for the study session by reading the book, class notes and all the handouts posted at the professor's website. After they've studied and prepared, they will get together and share what they've learned at their study session. The students (players) must decide whether to apply maximum effort to their study and preparation for the study session, or minimum effort. Maximum effort has a higher cost than minimum effort, but (generally speaking) a greater gain. Of course, the not-so-smart student will gain more from the effort of the smart student than the smart student ever gains from the not-so-smart student. We also know that the cost of maximum effort for the smart student is lower than the cost of maximum effort for the not-so-smart student (same for minimum effort), because the smart student is more efficient at studying and preparing for exams than the not-so-smart student (who at least has a good personality). The strategies for these players are as follows: Strategy #1 is to apply Maximum effort to study and preparation for their Study Session (i.e. put a lot of effort into trying to understand the material) Strategy #2 is to apply Minimum effort to study and preparation for their Study Session (i.e. put very little effort into trying to understand the material) We'll assume that this is a one-period game with complete information, where each player is interested in maximizing their own payoff. The payoffs in this game are "net satisfaction", which is the difference between the benefit and cost associated choosing a strategy. Given the strategies and discussion above, here are the four possible outcomes of this game (explanations for these strategies are provided with the homework posted at econpage.com): (Outcome 1) the Smart Student chooses Maximum Effort and the Not-so-Smart Student chooses Maximum Effort. This leads to the Smart Student earning 5 units of net satisfaction and Not-so-Smart Student earning 3 units of net satisfaction. (Outcome 2) the Smart Student chooses Maximum Effort and the Not-so-Smart Student chooses Minimum Effort. This leads to the Smart Student earning 2 units of net satisfaction and Not-so-Smart Student earning 4 units of net satisfaction. (Outcome 3) the Smart Student chooses Minimum Effort and the Not-so-Smart Student chooses Maximum Effort. This leads to the Smart Student earning 3.5 units of net satisfaction and Not-so-Smart Student earning 1 units of net satisfaction. (Outcome 4) the Smart Student chooses Minimum Effort and the Not-so-Smart Student chooses Minimum Effort. This leads to the Smart Student earning 3 units of net satisfaction and Not-so-Smart Student earning 1.5 units of net satisfaction. What will be the outcome if this is played as a simultaneous game?

#6) This question utilizes the information from question #5 (above). The difference here is that we will assume the Study Session Game is played as a one period sequential game (rather than as a simultaneous game) and that the Smart Student is the first mover. We will continue to assume that there is complete information and that the players will make choices which maximize their own net satisfaction.

What is the outcome of this game when the game becomes a sequential game with the Smart Student moving first? (Choose One)

The Smart Student will choose Maximum Effort, and the Not-so-Smart Student will choose Maximum Effort (Outcome #1)