The Prisoners' Dilemma

Visit the online repeated prisoners' dilemma game provided by Serendip.
a. Play this game using a strategy of cooperating each time. What is your average payoff?
b. Play this game using a strategy of competing each time. What is your average payoff?
c. Try using alternative strategies. Do any of these strategies perform better than one of those described above?
d. What strategy does the computer appear to be using?
e. If you know that this game is going to be played only once, what is the best strategy for you to pursue?
f. If you know that this game is to be played a fixed number of times, is there always an optimal strategy for the last move? If so, what is this strategy?
g. If this game is going to be repeated indefinitely, what is the best strategy for each participant to follow?
h. Explain how this game is related to oligopoly pricing behaviour.

Oil and the Gulf War

Read David R. Henderson's article entitled: "Do We Need to Go to War for Oil?" (While reading this, remember that this was written before the Gulf War actually began.)
a. Explain why Henderson suggested that Saddam Hussein "cannot single-handedly cause shortages and gasoline lines."
b. Why does Henderson argue that there would be little impact on world oil production even if Iraq were able to keep the Kuwaiti oil fields and take over the oil fields of Saudi Arabia?
c. Use the theory of cartels to explain why a successful Iraqi invasion of Kuwait and Saudi Arabia would result in reduced oil production. Would OPEC be more stable in this case?
d. Explain why Henderson believes that the price of oil would rise by a relatively large percentage in the short run if Iraq were to control the oil fields of Kuwait and Saudi Arabia.
e. Why would the economic impact of reduced oil production be larger in the short run than in the long run?