Ps2 - The two roads intersect in the middle of nowhere....

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Professor Rod Garratt Winter 2011 ECON 210B Problem Set #2 Due: Friday, January 28 1. A version of the wallet game goes like this. There are two players. Each player is asked to look inside his or her wallet and see how much money is there. Then, there is a first- price sealed-bid auction to win the amount of money contained in both wallets. Thus each player makes a bid, to win the total amount in both wallets, knowing the amount in his or her own wallet, but not the amount in the other player’s wallet. Suppose that it is common knowledge that each player has either $0 or $3 in his or her wallet, and that each possibility is equally likely. Suppose players can only make bids in $1 increments. Find a pure-strategy Bayesian equilibrium. 2. Every day Abe drives from his house in the north to his job in the south along route 66. Bob drives from his house in the west to his job in the east along route 99.
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Unformatted text preview: The two roads intersect in the middle of nowhere. There are currently no stop signs or traffic lights. Abe and Bob like to get to work without delays, but they don’t like crashing. This means that they prefer to drive through the intersection without stopping if they can get through safely. Stopping and then proceeding safely through the intersection is preferred by both to crashing. The situation is summarized in the normal form game below. B o b Go Stop Abe Go -100, -100 10, 5 Stop 5, 10 5, 5 (a) What are the Nash equilibria of the game? (b) Write down the probability distribution function over strategy profiles corresponding to the mixed strategy Nash equilibrium. (c) Explain how the introduction of a traffic light can be viewed as an instance of a correlated equilibrium. (d) Discuss the merits of the correlated equilibrium over the mixed strategy Nash equilibrium. Exercises 35.1 and 36.1....
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This note was uploaded on 12/26/2011 for the course ECON 210B taught by Professor Garratt during the Fall '09 term at UCSB.

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