Question

Which of the following sentences is correct? a) Backward induction finds each player's optimal decision at each decision node. b) The ability to move first has significant strategic value. c) A strategic move usually favours the player making it.

I know the answer is A, but why isn't C correct aswell?

Answer 1

Answer is option A)

A is right , bcoz when we solve game backwards, we unfold the game from the last node, & find rational eqm decision at every sub game, to obtain the SPNE.

B is false, not always, that a player makes profit, when he moves first, he/she might incur a loss as well, that is the second mover could potentially benefit, from the already done work of the first mover

For example,

In case of differentiatied Bertrand duopoly,

There is no first mover advantage, the second mover always earns higher profit .

While in case of Stackelberg sequential Quantity Game, there always exists the first mover advantage.

So the statement is false that a first mover tends to have significant profit value

thus option C is also false, which says that a stragic move usually favors the player,

like it's explained above, if strategically a player decides to move first in Bertrand price game, then he loses as compared to the player , who plays next