midterm2 2008 solutions

# We can see that this game has 2 ne which are the spe

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Unformatted text preview: see that this game has 2 NE, which are the SPE we are looking for. They can be written as (Lx,br), and (Rx, ar). 2 Consider the inﬁnitely repeated game with the following stage game: Chicken Lion Chicken 3,3 1,4 Lion 4,1 0,0 All the previous actions are observed, and each player maximizes the discounted sum of his stage payoﬀ with discount factor δ = 0.99. For each strategy proﬁle below check if it is a subgame­perfect equilibrium. (You need to state your arguments clearly; you will not get any points for Yes or No answers.) (a) (10 points) There are two modes: Cooperation and Fight. The game starts in the Cooperation mode. In Cooperation mode, each player plays Chicken. If both players play Chicken, then they remain in the Cooperation mode; otherwise they go to the Fight mode in the next period. In the Fight mode, both play Lion, and they go back to the Cooperation mode in the following period (regardless of the actions). 2 ANSWER: It is not SPE because in the ﬁght mode each player has an incentive to dev...
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## This document was uploaded on 03/21/2014 for the course ECON 14.12 at MIT.

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