An optional question to give you more practice solving games. Consider the following one-shot simultaneous game: David K L M 4, 0 3, 2 1, 2 X 3,1 2,0 1, 1 2, 2 Susan Y 0,0 2,8 Z
An optional question to give you more practice solving games. Consider the following one-shot simultaneous game: David K L M 4, 0 3, 2 1, 2 X 3,1 2,0 1, 1 2, 2 Susan Y 0,0 2,8 Z
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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SOLVE PART D, E & F, please
Transcribed Image Text:An optional question to give you more practice solving games. Consider the following one-shot
simultaneous game:
David
K
L
M
X
4,0
3,1
2,0
1, 1
2,2
Susan
Y
3,2
1, 2
0,0
2,8
Z
a. Before solving the game, put yourself in the position of Susan and write down your action.
Then independent of that, put yourself in the position of David and write down your action.
b. State all the dominated strategies in the full game, by which strategy they are dominated,
and whether weakly or strictly.
c. Solve the game by dominance, what is the equilibrium outcome by dominance, if any?
d. What are the pure strategy Nash equilibria of this game?
e. Argue which NE is more likely and why. You can then relate this argument to your play in
part a.
f. Assume David is the leader and Susan the follower. Solve the game by backwards induction.
What is the equilibrium outcome? Explain your steps. Is David's leadership and advantage
to him compared to the simultaneous game? Is David's leadership advantage to Susan?
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