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An effective threat is cheaper than an effective promise. Explain why this is true.

Answer the following questions. Refer to the lectures and the texts as needed. Note the page length suggestions for each assignment.

1.An effective threat is cheaper than an effective promise. Explain why this is true. Provide a specific example. (An essay of 100 words; with a typical font and spacing this will be about 1/2 page)

2. In the Tiny Poker game at the end of the lecture, each player has two different information sets and strategies. Remember that an information set is the information you have available to you at the time you make your decision, and a strategy must tell you what to do given each information set. Describe the two information sets, and suggest two strategies. (An essay of 250 words; with a typical font and spacing this will be about 1 page)

3.How does the concept of moral hazard apply to the bailout of private corporations by the government? What other applications can you think of? (An essay of 250 to 350 words; with a typical font and spacing this will be about 1 to 1-1/2 pages)


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