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# ps6 - Problem Set 6 Due Thursday Dec 3rd by 10pm 1 Consider...

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Problem Set 6 Due Thursday, Dec. 3rd, by 10pm 1. Consider a game where a buyer makes a take it or leave it offer, p , to a seller who then decides whether to accept the offer. (a) Suppose the buyer’s payoff is 5 - p if the offer is accepted and 0 if the offer is not accepted. The seller’s payoff is p if the offer is accepted and 1 if the offer is not accepted. Find a subgame perfect Nash equilibrium and and a Nash equilibrium that is not subgame perfect. (b) Suppose now that the seller can make an investment which is observed by the buyer before the buyer makes an offer. If the seller makes the investment, this improves the payoff for the buyer if the offer is accepted to 8 - p but lowers the payoff of the seller to p - 1 if the offer is accepted and 0 if the offer is not accepted. What is a subgame perfect Nash equilibrium to this game? (c) Now suppose the game was repeated forever. Find a trigger strategy and the values of

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ps6 - Problem Set 6 Due Thursday Dec 3rd by 10pm 1 Consider...

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