7 - ECON 3600 Assignment 7. Due Thursday, March 22nd 1....

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ECON 3600 Assignment 7. Due Thursday, March 22nd 1. (Adapted from Bierman and Fernandez) The Centipede Game is a two-person dynamic game that is played as follows: There is a pot of money. Initially, the pot has $2 in it. Player 1 moves first. He can either stop the game and take all the money in the pot ($2) or let the game go to round 2. In round 2, money is added to the pot so that now there are $2 2 = $4 in the pot, and Player 2 can either stop the game and take all the money in the pot ($4) or let the game go on to Round 3. And so on. Player 1 moves in odd- numbered rounds. Player 2 moves in even-numbered rounds. In each round the pot grows so that if the Nth round is reached the pot is worth $2 N . The game ends when a player stops it or when round 6 is reached. In round 6, Player 2 gets all the money in the pot and the game ends. a. Draw the game tree for the Centipede Game. b. Determine the subgame perfect equilibrium strategies for both players. What is the equilibrium outcome? c. In experiments with real money, where there is a constantly increasing pot (the pot has $N in it at the Nth round) and the maximum number of rounds is 100, players go as long as 50 rounds before somebody takes the pot. How does this compare to the equilibrium outcome you found? before somebody takes the pot....
View Full Document

Page1 / 3

7 - ECON 3600 Assignment 7. Due Thursday, March 22nd 1....

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online