Suppose there are three possible policies, X, Y and Z, person 1 prefers X to Y to Z, and person 2 prefers Z to Y to X. Model this situation as an extensive game and find its Nash equilibria.
Is any outcome generated by a Nash equilibrium not generated by any subgame perfect equilibrium? Consider variants of the game in which player 2’s preferences may differ from those specified in the previous exercise. Are there any preferences for which the outcome in a subgame perfect equilibrium of the game in which player 1 moves first differs from the outcome in a subgame perfect equilibrium of the game in which player 2 moves first?
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