Consider the Stage Game below, and consider the repeated game where players play twice (T =...

Consider the Stage Game below, and consider the repeated game where players play twice (T = 2). Payoﬀs for each agent are simply period one plus period two payoﬀs.
L C R T 6,6 0,7 1,2 M 7,0 1,1 2,0 B 2,1 0,1 3,3
(a) Do any strategies dominate any other?

(b) What are the two NE of the Stage Game? What is the diﬀerence between the two?

(c) Call the TL strategy proﬁle (1 plays T, 2 plays L) the “cooperative outcome”. It is not a NE. Consider the following strategy: • 1 plays T in stage 1, then – B if TL occurred in Stage 1 – M otherwise • 2 plays L in stage 1, then – R if TL occurred in Stage 1 – C otherwise There are two subgames here: The whole game, and the period two game. Show that playing BR is a NE in the period two game. Show that the above strategy is a NE of the whole game, and thus an SPE.

Expert Solution

Rahul Sunny answered 1 year ago

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