Practice-Problems-2

# Practice-Problems-2 - Practice Problems 2 Game Theory...

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Practice Problems 2 — Game Theory Instructor: Todd Sarver Econ 310-2, Fall 2011 These problems do not need to be turned in. Solutions to these problems will be presented by the TAs in the discussion sessions (as time permits). I strongly encourage you to solve each problem before going to the discussion session or looking at the solutions. 1 Dinner for Two You and your date are going out to dinner. The restaurant has two items on the menu, tofu for 10 and risotto for 16. Each of you has the same preferences: Your value for tofu is 20, while your value for risotto is 25. You have quasi-linear utility, so your total utility for any item is equal to your value minus the money you have to pay. Each of you can order and eat one item. (a) Suppose that you ask for separate checks, so that each of you pays only for what you order. Write down the payoff matrix of the resulting game and find its Nash equilibrium. What will each of you order? What will be your utility?

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