Econ 171
Spring 2010
Problem Set 2
Due May 6
Important: hand in only the twostar 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 backwardsinduction 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 backwardsinduction outcome.
(c) Now construct a different set of payoffs such that the unique backwardsinduction
outcome is
r
3
, but the backwardsinduction
strategies
are different than in the
game you constructed in the previous part.
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 Fall '08
 Charness,G
 Game Theory

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