Homework 4 Solution

Homework 4 Solution - Spring 2008, UGBA 143 Homework 4...

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Unformatted text preview: Spring 2008, UGBA 143 Homework 4 Solution Problem 1 Here are the three game trees, with payoff in $1000s. The black dots represent the branches that will be chosen: In part a, Mr. B will always choose not to join the army he is obviously better off not joining if Mr. A has already joined, since his net payoff is 3-10=-7 if he joins, and nothing will happen (payoff zero) if he doesnt join. If Mr. A doesnt join, Mr. B will have a payoff of -7 if he joins, but will on average have a payoff of -5 if he doesnt, since he has a 50% chance of being drafted (and wont get the $3000 sum he wouldve gotten by volunteering). Mr. A, knowing that Mr. B wont join, has to choose between -7 and -5, so he wont join either. The game is solved similarly in parts b and c, except that the volunteering award is 6 in part b and 12 in part c. The outcome in part B is that Mr. A doesnt join and Mr. B joins. The outcome in part c is that both will join....
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Homework 4 Solution - Spring 2008, UGBA 143 Homework 4...

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