1. B is offering to buy an object from S. S values the good at $4 (type "H"), or $3 (type "M") or $2 (type "L"). But S's exact valuation is unknown to B, who simply attaches equal probabilities to all three possibilities, a fact known commonly to both players. B values the good at $5. B makes a take-it-or-leave-it offer to S. (a) Analyze the perfect Bayesian equilibrium of this game. (b) What if S's valuation is distributed uniformly over [2, 4]? Repeat the same exercise as in (a).
1. B is offering to buy an object from S. S values the good at $4 (type "H"), or $3 (type "M") or $2 (type "L"). But S's exact valuation is unknown to B, who simply attaches equal probabilities to all three possibilities, a fact known commonly to both players. B values the good at $5. B makes a take-it-or-leave-it offer to S. (a) Analyze the perfect Bayesian equilibrium of this game. (b) What if S's valuation is distributed uniformly over [2, 4]? Repeat the same exercise as in (a).
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![1. B is offering to buy an object from S. S values the good at $4 (type "H"), or $3 (type
"M") or $2 (type "L"). But S's exact valuation is unknown to B, who simply attaches equal
probabilities to all three possibilities, a fact known commonly to both players. B values the
good at $5. B makes a take-it-or-leave-it offer to S.
(a) Analyze the perfect Bayesian equilibrium of this game.
(b) What if S's valuation is distributed uniformly over [2, 4]? Repeat the same exercise as
in (a).](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F328146a8-9bdb-4370-ae68-147512e2e1bc%2Fef669cc2-2f72-45d9-8266-e6f706be8edc%2F14uoi99_processed.jpeg&w=3840&q=75)
Transcribed Image Text:1. B is offering to buy an object from S. S values the good at $4 (type "H"), or $3 (type
"M") or $2 (type "L"). But S's exact valuation is unknown to B, who simply attaches equal
probabilities to all three possibilities, a fact known commonly to both players. B values the
good at $5. B makes a take-it-or-leave-it offer to S.
(a) Analyze the perfect Bayesian equilibrium of this game.
(b) What if S's valuation is distributed uniformly over [2, 4]? Repeat the same exercise as
in (a).
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