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2, 6 0, 4 4, 4 M 3, 3 0,0 1, 5 D 1, 1 3, 5 2, 3 If player 1 believes that player 2 never play C, then its best response would be a mixed strategy. If player 2 believes that player 1 always play M, then its best response would be a mixed strategy. If player 2 has 30% chance to play L and 70% chance to play C, then the best response for player 1 is to play D If player 1 randomly play U, M, D with the same probability, then the best response for player 2 would be L.

2, 6 0, 4 4, 4 M 3, 3 0,0 1, 5 D 1, 1 3, 5 2, 3 If player 1 believes that player 2 never play C, then its best response would be a mixed strategy. If player 2 believes that player 1 always play M, then its best response would be a mixed strategy. If player 2 has 30% chance to play L and 70% chance to play C, then the best response for player 1 is to play D If player 1 randomly play U, M, D with the same probability, then the best response for player 2 would be L.

Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter20: The Problem Of Adverse Selection Moral Hazard
Section: Chapter Questions
Problem 3MC
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Which of the above 4 statements is CORRECT? 

2, 6 0, 4 4, 4 M 3, 3 0,0 1, 5 D 1, 1 3, 5 2, 3
Transcribed Image Text:2, 6 0, 4 4, 4 M 3, 3 0,0 1, 5 D 1, 1 3, 5 2, 3
If player 1 believes that player 2 never play C, then its best response would be a mixed strategy. If player 2 believes that player 1 always play M, then its best response would be a mixed strategy. If player 2 has 30% chance to play L and 70% chance to play C, then the best response for player 1 is to play D If player 1 randomly play U, M, D with the same probability, then the best response for player 2 would be L.
Transcribed Image Text:If player 1 believes that player 2 never play C, then its best response would be a mixed strategy. If player 2 believes that player 1 always play M, then its best response would be a mixed strategy. If player 2 has 30% chance to play L and 70% chance to play C, then the best response for player 1 is to play D If player 1 randomly play U, M, D with the same probability, then the best response for player 2 would be L.
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