Player 1 Cooperate (C) Defect (D) Cooperate (C) 3,3 8,0 Player 2 Defect (D) 0,8 1, 1 Suppose the game is repeated infinitely many times, and 2 plays a grim trigger strategy (cooperates as long as 1 cooperates, but defects forever after 1 defects). What is the value of 1's future payoffs if 1 defects today and then best-responds to 2? Assume that the discount factor is still 0.5 (i.e. payoffs in the next period are worth half as much as payoffs today). 1 2 8 9 If the game is repeated infinitely many times, what is the smallest discount factor that would support cooperation in Nash equilibrium? 1/2 5/7 3/8

Player 1 Cooperate (C) Defect (D) Cooperate (C) 3,3 8,0 Player 2 Defect (D) 0,8 1, 1 Suppose the game is repeated infinitely many times, and 2 plays a grim trigger strategy (cooperates as long as 1 cooperates, but defects forever after 1 defects). What is the value of 1's future payoffs if 1 defects today and then best-responds to 2? Assume that the discount factor is still 0.5 (i.e. payoffs in the next period are worth half as much as payoffs today). 1 2 8 9 If the game is repeated infinitely many times, what is the smallest discount factor that would support cooperation in Nash equilibrium? 1/2 5/7 3/8

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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