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PS2_001 - Econ 171 Spring 2010 Problem Set 2 Due May 6...

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Econ 171 Spring 2010 Problem Set 2 Due May 6 Important: hand in only the two-star problems. The notation a.b denotes problem number b from Chapter a in Watson. * Problem 1 R 0 , 0 L 1 b a 2 Figure 1: An extensive game In the game in Figure 1, solve for the backwards-induction strategies and outcomes when the four missing payoffs are filled in with each possible permutation of the four numbers {- 2 , - 1 , 1 , 2 } . * Problem 2 R 1 L 1 1 r 1 a,b l 1 2 r 2 e,f l 2 c,d 2 R 2 L 2 g,h 1 r 3 k,l l 3 i,j 2 Figure 2: Another extensive game (a) List the strategies available to each player in the game shown in Figure 2. (b) Construct payoffs ( a,b,c,d,e,f,g,h,i,j,k,l ) such that the terminal node r 3 , with payoffs ( k,l ), will be the unique backwards-induction outcome. (c) Now construct a different set of payoffs such that the unique backwards-induction outcome is r 3 , but the backwards-induction strategies are different than in the game you constructed in the previous part.
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