Comment on the following statement: If one player in the game ...

[viki]

Comment on the following statement: If one player in the game does not have a dominant strategy, it is impossible to predict the outcome of the game.
 
  What will be an ideal response?

Question 2

Explain the principle of the second best.
 
  What will be an ideal response?

[Pariscourtney]

Answer to Question 1

The statement is false. If one player has a dominant strategy and the other player knows it, then the outcome is predictable. For example, if player A will go right when player B moves left and vice versa, we can predict what player A will do if player B has a dominant strategy. If player B's dominant strategy is to move right, then we know that player A will move left.

Answer to Question 2

The principle of second best rests on the fact that just because a tax distorts an economic decision does not always imply that such a tax imposes an excess burden. If previously existing distortions exist, such a tax may actually improve efficiency.