A buyer and seller trade with each other for an infinite number of periods. Both parties have a discount factor of d, where 0 < d < 1. In each period both parties can play trust (T) or to play selfish (S). If both the buyer and seller play T the payoffs are 4 to each player. If both parties play S the payoffs are 3 to each player. If one player plays S and the other T, the payoffs are 6 to the player who opted for S and 1 to the party that opted for T. Consider the following trigger strategy. In the first period play T. In any subsequent period, play T if in every previous period the outcome was (T. T), if not play S. What is the minimum d required for this trigger strategy to be subgame perfect equilibrium? None of the other answers are correct. O 1/4 O 1/3 Od O 3/4

A buyer and seller trade with each other for an infinite number of periods. Both parties have a discount factor of d, where 0 < d < 1. In each period both parties can play trust (T) or to play selfish (S). If both the buyer and seller play T the payoffs are 4 to each player. If both parties play S the payoffs are 3 to each player. If one player plays S and the other T, the payoffs are 6 to the player who opted for S and 1 to the party that opted for T. Consider the following trigger strategy. In the first period play T. In any subsequent period, play T if in every previous period the outcome was (T. T), if not play S. What is the minimum d required for this trigger strategy to be subgame perfect equilibrium? None of the other answers are correct. O 1/4 O 1/3 Od O 3/4

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

Chapter15: Strategic Games

Section: Chapter Questions

Problem 2MC

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