Question 5 Consider the following game in normal form: L C R U 3, 1 5,0 0,0 M 2,0 4,4 0,0 Ꭰ 0,0 0, 1 0,0 This stage game is infinitely repeated. The players' discount factor is 8 = (0,1). i. ii. Use Friedman Folk Theorem and a graph to identify the set of payoffs that can arise in a SPNE when 8 is sufficiently close to one. Give the precise strategies for player 1 and player 2 that would generate an average payoff of 4 for each player. Calculate the minimum value of 8 that will make your strategy profile a SPNE.

Microeconomic Theory
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ISBN:9781337517942
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Chapter8: Game Theory
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Question 5
Consider the following game in normal form:
L
C
R
U
3, 1
5,0
0,0
M
2,0
4,4
0,0
Ꭰ
0,0
0, 1 0,0
This stage game is infinitely repeated. The players' discount factor is 8 = (0,1).
i.
ii.
Use Friedman Folk Theorem and a graph to identify the set of payoffs that can arise
in a SPNE when 8 is sufficiently close to one.
Give the precise strategies for player 1 and player 2 that would generate an average
payoff of 4 for each player. Calculate the minimum value of 8 that will make your
strategy profile a SPNE.
Transcribed Image Text:Question 5 Consider the following game in normal form: L C R U 3, 1 5,0 0,0 M 2,0 4,4 0,0 Ꭰ 0,0 0, 1 0,0 This stage game is infinitely repeated. The players' discount factor is 8 = (0,1). i. ii. Use Friedman Folk Theorem and a graph to identify the set of payoffs that can arise in a SPNE when 8 is sufficiently close to one. Give the precise strategies for player 1 and player 2 that would generate an average payoff of 4 for each player. Calculate the minimum value of 8 that will make your strategy profile a SPNE.
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