Answered: The set of states is W = {a, b, c, d,…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Please read the question carefully and answer correctly Part B only. I hope you do not waste your or my time by giving me a wrong answer. there is a similar question and answer posted before but it was completely wrong. It is an economy game theory question. Thanks

2. The set of states is W = {a, b, c, d, e},

Individual 1’s information partition is {{a, b, d}, {c}, {e}},

Individuals 2’s information partition is {{a, c}, {b, d}, {e}},

Individual 3’s information partition is {{a, b, c}, {d}, {e}}.

(a) Construct the Common Knowledge Partition.

(b) Let E = {a, b, d, e}. Find the following events: K1E, K2E, K3E, K1K2E, and CKE.

Definition Definition Economic decision-making framework that analyzes how different players optimize their outcomes with given pay-offs corresponding to their available strategies. The assumptions of game theory are: The number of players or competitors are finite/limited; All participants are rational The rules of the game are known to every player; and Each participant has a finite set of actions. A common way in which game theory is presented as an ( m x n ) matrix in which m represents the strategies of row player and n represents the strategies of column player. There are several limitations of game theory: Many businesses have a large number of competitors, and selecting an optimal strategy in these circumstances is difficult; Real-life business operating environments are full of uncertainty and difficult to model as a game theory; and The assumption of rationality and utility maximization isn't always an accurate portrayal of human nature.

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