Trading envelopes Julie flips a fair coin. If the coin lands heads up, she puts $10 in an envelope and if the coin lands tails up she puts $1,000 in an envelope. Julie then gives the envelope to Alice, and gives $100 to Berta. Alice can look in the envelope to see how much money is inside, but Berta cannot see inside the envelope. However, everyone knows that Berta has $100. Simultaneously, Alice and Berta each choose whether to trade (T) or not (NT). The trade only occurs if they both want to trade. 1. What is the type space for Alice? 2. What is the strategy set for Alice? 3. What is the strategy set for Berta? 4. Find all of the pure strategy Bayesian Nash equilibria.

Trading envelopes Julie flips a fair coin. If the coin lands heads up, she puts $10 in an envelope and if the coin lands tails up she puts $1,000 in an envelope. Julie then gives the envelope to Alice, and gives $100 to Berta. Alice can look in the envelope to see how much money is inside, but Berta cannot see inside the envelope. However, everyone knows that Berta has $100. Simultaneously, Alice and Berta each choose whether to trade (T) or not (NT). The trade only occurs if they both want to trade. 1. What is the type space for Alice? 2. What is the strategy set for Alice? 3. What is the strategy set for Berta? 4. Find all of the pure strategy Bayesian Nash equilibria.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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