P1 \ P2 Left Middle Right Left 4,2 3,3 2,1 Middle 3,3 5,5 6,2 Consider the simultaneous move game represented by this payoff matrix. Suppose that the game is repeated for two periods and the players know that the game will end at the end of two periods. They observe the first period outcome before they move to the second period. Assume that there is no discounting, i.e. 2nd period payoffs are not discounted, or the discount factor is equal to 1. Which of the following outcomes could occur in some subgame perfect equilibrium (SPE) of this two period repeated game? Choose True if you think the outcome can be a SPE, otherwise choose False. a) (Left, Left) is played in both periods. b) (Right, Right) is played in both periods. c) (Middle, Middle) is played in both periods. d) (Middle, Middle) is played Right 1,2 2,6 3,3 ◆ ◆ first period, followed by (Left, Left). ◆ e) (Middle, Middle) is played in the first period, followed by (Right, Right). Now suppose that the game is infinitely repeated. Denote the discount factor of the players as d. What is the threshold d* such that when

P1 \ P2 Left Middle Right Left 4,2 3,3 2,1 Middle 3,3 5,5 6,2 Consider the simultaneous move game represented by this payoff matrix. Suppose that the game is repeated for two periods and the players know that the game will end at the end of two periods. They observe the first period outcome before they move to the second period. Assume that there is no discounting, i.e. 2nd period payoffs are not discounted, or the discount factor is equal to 1. Which of the following outcomes could occur in some subgame perfect equilibrium (SPE) of this two period repeated game? Choose True if you think the outcome can be a SPE, otherwise choose False. a) (Left, Left) is played in both periods. b) (Right, Right) is played in both periods. c) (Middle, Middle) is played in both periods. d) (Middle, Middle) is played Right 1,2 2,6 3,3 ◆ ◆ first period, followed by (Left, Left). ◆ e) (Middle, Middle) is played in the first period, followed by (Right, Right). Now suppose that the game is infinitely repeated. Denote the discount factor of the players as d. What is the threshold d* such that when

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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