end-of-chapter-exercise-solutions

# End-of-chapter-exerc - 7 RATIONALIZABILITY AND ITERATED DOMINANCE 7 Rationalizability and Iterated Dominance 7 Yes If s1 is rationalizable then s2

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7 Rationalizability and Iterated Dominance 1. (a) R = { U, M, D }×{ L, R } . (b) Here there is a dominant strategy. So we can iteratively delete dom- inated strategies. U dominates D. When D is ruled out, R dominates C. Thus, R = { U, M L, R } . (c) R = { (U, L) } . (d) R = { A, B X, Y } . (e) R = { A, B X, Y } . (f) R = { A, B X, Y } . (g) R = { (D, Y) } . 2. Chapter 2, problem 1(a) (the normal form is found in Chapter 4, problem 2): R = { (Ea, aa I ) , (Ea, an I ) } . Chapter 5: R = { U, M, D L, C, R } . 3. No. This is because 1/2 A 1/2 B dominates C. 4. For “give in” to be rationalizable, it must be that x 0. The man- ager must believe that the probability that the employee plays “settle” is (weakly) greater than 1/2. 5. R = { ( w,c ) } . The order does not matter because if a strategy is domi- nated (not a best response) relative to some set of strategies of the other player, then this strategy will also be dominated relative to a smaller set of strategies for the other player. 6. R = { (7:00, 6:00, 6:00) } . 86 7 RATIONALIZABILITY AND ITERATED DOMINANCE 87 7. Yes. If s 1 is rationalizable, then s 2 is a best response to a strategy of player 1 that may rationally be played. Thus, player 2 can rationalize strategy s 2 . 8. No. It may be that s 1 is rationalizable because it is a best response to some other rationalizable strategy of player 2, say ˆ s 2 , and just also happens to be a best response to s 2 .

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9 Congruous Strategies and Nash Equilibrium 1. (a) The Nash equilibria are (B, CF) and (B, DF). (b) The Nash equilibria are (IU, I), (OU, O) and (OD, O). (c) The Nash equilibria are (UE, BD), (UF, BD), (DE, AC), and (DE, BC). (d) There is no Nash equilibrium. 2. (a) The set of Nash equilibria is { (B, L) } = R . (b )Th es e to fNa shequ i l ib r iai s { (U, L),(M, C) } . R = { U, M, D { L, C } . (c) The set of Nash equilibria is { (U, X) } = R . (d) The set of Nash equilibria is { (U, L), (D, R) } . R = { U, D }×{ L, R } . 3. Figure 7.1: The Nash equilibrium is (B,Z). Figure 7.3: The Nash equilibrium is (M,R). Figure 7.4: The Nash equilibria are (stag,stag) and (hare,hare). Exercise 1: (a) No Nash equilibrium. (b) The Nash equilibria are (U,R) and (M,L). (c) The Nash equilibrium is (U,L). (d) The Nash equilibria are (A,X) and (B,Y). (e) The Nash equilibria are (A,X) and (B,Y). (f) The Nash equilibria are (A,X) and (B,Y). (g) The Nash equilibrium is (D,Y). Chapter 4, Exercise 2: The Nash equilibria are (Ea,aa I ) and (Ea,an I ). Chapter 5, Exercise 1: The Nash equilibrium is (D,R). Exercise 3: No Nash equilibrium. 4. Only at (1/2, 1/2) would no player wish to unilaterally deviate. Thus, the Nash equilibrium is (1/2, 1/2). 92 9 CONGRUOUS STRATEGIES AND NASH EQUILIBRIUM 93 5. Player 1 solves max s 1 3 s 1 2 s 1 s 2 2 s 2 1 .Tak ing s 2 as given and di f erentiat- ing with respect to s 1 yields the f rst order condition 3 2 s 2 4 s 1 =0 .Re- arranging, we obtain player 1’s best response function: s 1 ( s 2 )=3 / 4 s 2 / 2. player 2 solves max s 2 s 2 +2 s 1 s 2 2 s 2 2 . This yields the best response function s 2 ( s 1 )=1 / 4+ s 1 / 2. The Nash equilibrium is found by f nding the strategy pro f le that satis f es both of these equations. Substituting player 2’s best response function into player 1’s, we have s 1 =3 / 4 1 / 2[1 / s 1 / 2]. This implies that the Nash equilibrium is (1/2, 1/2).
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## This note was uploaded on 08/20/2011 for the course ECON 101 taught by Professor Etw during the Spring '11 term at UniversitÃ di Bologna.

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End-of-chapter-exerc - 7 RATIONALIZABILITY AND ITERATED DOMINANCE 7 Rationalizability and Iterated Dominance 7 Yes If s1 is rationalizable then s2

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