Consider an infinitely repeated game where the stage game is the game of chicken: Swerve Straight Swerve 0,0 -1,1 Straight 1, -1 -10, -10 Assume that the discount factor is very close to one. For concreteness, you can assume that d = 0.99.

Consider an infinitely repeated game where the stage game is the game of chicken: Swerve Straight Swerve 0,0 -1,1 Straight 1, -1 -10, -10 Assume that the discount factor is very close to one. For concreteness, you can assume that d = 0.99.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Equilibrium Price and Quantity

Equilibrium refers to a state of balance that comes about because there is equality in all forces.

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Please try to solve it in 30 minute

Consider an infinitely repeated game where the stage game is the game of chicken:
Swerve
Straight
Swerve
0,0
-1,1
Straight
1, –1
-10, –10
Assume that the discount factor is very close to one. For concreteness, you can
assume that d = 0.99.
(a) Is there an SPE in which player l's payoff is 1/(1 – 6)? Explain.
(b) Is there an SPE in which each player gets a payoff of 0? Explain.
(c) Is there an SPE in which player l's payoff is -2/(1 – 8)? Explain.

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