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116A_HW7 - If player 2 chooses C the game passes to player...

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Econ 116A, Fall 2010 Homework # 7 1. (Centipede Game) Consider a two player game in which the players move alternately. On each move a player can either stop the game (S) or continue (C). A three stage game is played as below. If player 1 chooses S, the game ends and the payoffs are (m,n) where m-n > 1. If player 1 chooses C, the game passes to player 2. If player 2 chooses S, then the the game ends and the payoffs are (n+1, m+1).
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Unformatted text preview: If player 2 chooses C, the game passes to player 1 who can either play S with payoffs (m+2, n+2) or C with payoffs (n+3, m+3). In both cases the game ends. a. Show this sequential game in the form of a diagram. b. Solve the game using backwards induction. c. How does your answer in part b change if the game had hundred stages? d. How will you play the game if you were player 1? 2. Exercise 156.2, c...
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