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Unformatted text preview: Prof. William H. Sandholm Department of Economics University of Wisconsin March 13, 2008 Midterm Exam Economics 713 1. (35 points) Consider the extensive form game below: 1 1 2 2 4, 4 6, 2 0, 0 0, 0 2, 2 R L R L O I T B (i) Compute all subgame perfect equilibria of . (ii) Compute all sequential equilibria of . (iii) Compute all proper equilibria of the reduced normal form of . (iv) The least demanding concept used in the analysis of games is the elimination of strictly dominated strategies: no such strategy should ever be chosen by a Bayesian- rational player. Given this fact, it seems natural to seek solution concepts whose predictions are una ff ected when a strategy that is strictly dominated (in the reduced normal form) is removed from a game. Using your answers to parts (i)-(iii), discuss how subgame perfect equilibrium, sequential equilibrium, and proper equilibrium fare under this criterion....
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