mid03 - Department of Economics The Ohio State University...

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Department of Economics The Ohio State University Midterm Exam–Econ 805 Prof. Peck February 11, 2003 Directions: Answer all questions, carefully label all diagrams, and show all work. 1. (30 points) Consider the following game with two players, a plainti¤ and a defendant engaged in a civil law suit. Nature moves …rst, selecting which side would win if the case goes to trial. The probability that the plainti¤ would win a trial is 1 3 , and the probability that the defendant would win a trial is 2 3 . The plainti¤ observes whether or not he would win, but the defendant does not. If the plainti¤ wins a trial, his payo¤ is 3 and the defendant’s payo¤ is ¡ 4 .I f t h e plainti¤ loses a trial, his payo¤ is ¡ 1 and the defendant’s payo¤ is 0 . Now suppose that the plainti¤, after observing who would win a trial, is forced to propose a settlement, either a low settlement, m =1 ,o rah ighse t
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mid03 - Department of Economics The Ohio State University...

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