Homework 4 Solution

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

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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  doesn’t join.  If Mr. A doesn’t join, Mr. B will have a payoff of -7 if he joins, but will on average have a  payoff of -5 if he doesn’t, since he has a 50% chance of being drafted (and won’t get the $3000 sum he  would’ve gotten by volunteering).  Mr. A, knowing that Mr. B won’t join, has to choose between -7 and -5,  so he won’t 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 doesn’t join and Mr. B joins.  The outcome in part c is that both 
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