3. Repeated Game Consider the game in which the stage game depicted below is infinitely repeated and in which both players discount future payoffs with discount factor d € [0, 1]. Player 1 E S Player 2 E 3,3 4,-1 S -1,4 1,1 (a) Suppose that both players play the tit-for-tat strategy. This strategy is characterized by exerting effort (playing E) in the first round. Then in future rounds, a player copies the action chosen by his opponent in the previous period (i.e if Player 2 shirks (plays S) in period 2, then Player 1 plays S in period 3). Then, for what values of 6 can tit-for-tat be supported on the equilibrium path of play? (b) Suppose that both players play the perfect tit-for-tat strategy. This strategy is characterized by exerting effort (playing E) in the first round. Then in future rounds, a player plays E unless the actions are disagreed in the previous period. Then, for what values of 6 can perfect tit-for-tat be supported on the equilibrium path of play?
3. Repeated Game Consider the game in which the stage game depicted below is infinitely repeated and in which both players discount future payoffs with discount factor d € [0, 1]. Player 1 E S Player 2 E 3,3 4,-1 S -1,4 1,1 (a) Suppose that both players play the tit-for-tat strategy. This strategy is characterized by exerting effort (playing E) in the first round. Then in future rounds, a player copies the action chosen by his opponent in the previous period (i.e if Player 2 shirks (plays S) in period 2, then Player 1 plays S in period 3). Then, for what values of 6 can tit-for-tat be supported on the equilibrium path of play? (b) Suppose that both players play the perfect tit-for-tat strategy. This strategy is characterized by exerting effort (playing E) in the first round. Then in future rounds, a player plays E unless the actions are disagreed in the previous period. Then, for what values of 6 can perfect tit-for-tat be supported on the equilibrium path of play?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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