Логические задачки: меньше значит больше?

[Ответ]

There are two distinct proposals A and B being debated in Washington. The Congress likes proposal A
and the President likes proposal B. The proposals are not mutually exclusive; either or both or neither
may become law. Thus there are four possible outcomes, and the rankings of the two sides are as
follows, where a larger number represents a more favored outcome:

Outcome Congress President

A becomes law 4 1
B becomes law 1 4
Both A and B become law 3 3
Neither (status quo prevails) 2 2

a) The moves in the game are as follows. First, the Congress decides whether to pass a bill and
whether it is to contain A or B or both. Then the President decides whether to sign or veto the
bill. Congress does not have enough votes to override a veto. What proposal wins in this case?

We present this sequential game in extensive form:

Decision
Decision
Nodes
Node for Stage 1 Stage 2 Payoffs
for
Congress
President

Sign (4, 1)
Pass A President
Veto (2, 2)

Sign (1, 4)
Pass B President
Veto (2, 2)
Congress

Sign (3, 3)
Pass both President
Veto (2, 2)

Pass neither (2,2)

The Congress uses backward induction to decide on its first move. After analyzing the president’s
payoffs, the congress understands that

If it passes A, the president will veto the law, leaving the Congress with a payoff of 2.
If it passes B, the president will sign the law, leaving the Congress with a payoff of 1.
If it passes both A and B, the president will sign the law, leaving the Congress with a payoff of 3.

1
If it passes neither, their payoff is automatically 2.

The Congress sees that their best response in this case is to pass both law A and law B as in this case
their payoff is higher (3) than in other cases (1 or 2). So the outcome is that the Congress passes both
laws and the presidents signs (marked with red). So the answer is that both proposals win in this case.

b) Now suppose the rules of the game are changed in only one respect: the President is given the
extra power of a line-item veto. Thus, if the congress passes a bill containing both A and B, the
President may choose not only to sign or veto the bill as a whole, but also to veto just one of the
two items. What proposal wins in this case?

Under the new rules of the game the extensive game representation is changed to the following:

Decision Decision
Node for Stage 1 Nodes for Stage 2 Payoffs
Congress President

Sign (4, 1)
Pass A President
Veto (2, 2)

Sign (1, 4)
Pass B President
Veto (2, 2)

Sign A and
(4, 1)
Congress Veto B

Sign B and
(1, 4)
Veto A
Pass both President
Sign both (3, 3)

Veto both (2, 2)

Pass neither (2,2)

The Congress again, thinks forward and reasons backward to decide on its first move. After analyzing the
president’s payoffs, the congress understands that

If it passes A, the president will veto the law, leaving the Congress with a payoff of 2.
If it passes B, the president will sign the law, leaving the Congress with a payoff of 1.
If it passes both A and B, the president will sign A and veto B, leaving the Congress with a payoff of 1.
If it passes neither, their payoff is automatically 2.

In this situation, the Congress is indifferent between passing A or passing neither as in both cases they
will have a payoff of 2. In both cases status quo prevails: in the first case, because the president will veto
an attempted passage of A and in the second case because the Congress will pass neither A nor B. So the
answer is that no proposal wins in this case.

2
 c) Explain why the difference between the two equilibria arises.

The reason why there is a difference between situations (a) and (b) is that the structure of the game
changed, giving the president more power, ironically leaving him with less payoff at the end of the
game, exactly because he is more powerful. The Congress, using backward induction, takes his new
power into account and as a first-move player has to make a move that will leave it with worse payoff
compared to the situation (a).