Question

In: Economics

. Two friends are playing a matching card game where friend 1, Max, chooses an Ace,...

. Two friends are playing a matching card game where friend 1, Max, chooses an Ace, Two, or Three and friend 2, Lucy, plays King, Queen, or Jack. They both put $ 5 each into the pot. Depending on what cards they play, they split the pot differently. The payoffs are summarized in the following table:

   Lucy

King Queen Jack

Max Ace (1,3)   (3,5) (2,4)

Two (6,5)   (3,3) (3,2)

Three (4,2) (5,4) (3,1)

(a) Use iterated elimination of strictly dominated actions (IESDA) to eliminate actions for Max and Lucy. Write out which action is dominated and HOW it is dominated (if you use a mixed strategy to eliminate another action, you need to specify the set of possible mixes or a particular mix).(4 points)

(b) Solve for all Nash Equilibrium/Equilibria of the game. Circle your answer. Explain why the set of actions you identify is a Nash Equilibrium. Write out the definition of Nash Equilibrium as part of your explanation. (8 points)

Solutions

Expert Solution

Rahul Sunny answered 7 months ago
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