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a5smpa11 - Econ 485 Problem set 5 with answers Fahad Khalil...

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Econ 485 Fahad Khalil Problem set 5 with answers 1. Problem 2.10 from the book. 2. Problem 2.11 from the book. 3. Problem 2.13 from the book. 4. In class, we assumed that “deviation from cooperation” is immediately detected so that “retaliation” can occur the next period. Suppose deviations are no t detected immediately and a player can deviate for two periods before retaliation occurs. Calculate the critical delta for the prisoners’ dilemma game done in class and explain why it is different from what we found in class. Answer key 5: (2.10). After solving for the NE of the subgame according to the strategies specified, the players can anticipate them in the first stage as follows. It is enough to just present the relevant rows and columns. They imply that x cannot be higher than 6. P 1 Q 1 R 1 P 2 Q 2 R 2 S 2 2, 2 x, (0+2) (0+2), x (4+2), (4+2) (-1+2), 0 (0+2), 0 0, (0+2) 1, 0 2, 2 S 1 0, (-1+2) (2.11) First note that Row is the “problem player” who prefers to pla y T if Column plays R. Thus, the second stage play will be used by address this incentive problem.
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