Eric Stevanus 2201756600 -LA28

Individual Assignment ke 9 LA28

1. Use the following one-shot, normal-form game to answer the following questions.

a. Find each player’s dominant strategy, if it exists.

Player’s 1 dominant strategy is B whereas Player 2 does not have dominant strategy.

b. Find each player’s secure strategy.

Player 1 – Strategy B while Player 2 – Strategy E

c. Find the Nash equilibrium

(B, E)

2. In a two-player, one-shot, simultaneous-move game, each player can choose strategy A or

strategy B. If both players choose strategy A, each earns a payoff of $400. If both players choose
strategy B, each earns a payoff of $200. If player 1 chooses strategy A and player 2 chooses
strategy B, then player 1 earns $100 and player 2 earns $600. If player 1 chooses strategy B and
player 2 chooses strategy A, then player 1 earns $600 and player 2 earns $100.

a. Write this game in normal form.

Player 2
Player 1 Strategy A B
A $400, $400 $100, $600
B $600, $100 $200, $200

b. Find each player’s dominant strategy, if it exists.

Both Players have a dominat strategy, which are choosing strategy B.

c. Find the Nash equilibrium (or equilibria) of this game.

(B,B)

d. Rank strategy pairs by aggregate payoff (highest to lowest).

(A,A)= $800, (A,B) and (B,A) = $700, (B,B)=$400

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e. Can the outcome with the highest aggregate payoff be sustained in equilibrium? Why or
why not?

No, because since this is a one shot game, and the fact that each firm’s dominant
strategy is B, both will have the incentive to choose B or cheat the other ones .

3. Use the following payoff matrix for a simultaneous-move one-shot game to answer the
accompanying questions.

a. What is player 1’s optimal strategy? Why?

Chooses A, because player 2 has a dominant strategy, which is choosing E.Thus in order
to prevent further loss, Player 1 should choose Strategy A.

b. Determine player 1’s equilibrium payoff.

Player 1 Equilibrium payoff=18

4. Use the following normal-form game to answer the following questions.

a. Identify the one-shot Nash equilibrium.

(A,C)

b. Suppose the players know this game will be repeated exactly three times. Can they achieve
payoffs that are better than the one-shot Nash equilibrium? Explain.

No, because the last round will be treated as a one shot game, and both players would
deviate from the B,D strategy and cheat the other. And since both players knows that
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they’re going to cheat in the last round, they’ll try or have an incentive to cheat in the
second round, and in the first round as well. Both players would always have an incentive to
cheat.

c. Suppose this game is infinitely repeated and the interest rate is 6 percent. Can the players
achieve payoffs that are better than the one-shot Nash equilibrium? Explain.

If firms adopt the trigger strategies outlined in the text, higher payoffs can be achieved if

π Cheat −π Coop 1
≤
π C oop−π N i
πCheat= 70

πCoop= 60,

πN= 30,

i=0,06

70−60 1
¿ ≤
60−30 0,06
1 1
¿ ≤
3 0,06
¿ 0,33 ≤16,67
Then it’s proven that each firms can get a higher payoff of 60 via the trigger strategies.

d. Suppose the players do not know exactly how many times this game will be repeated, but
they do know that the probability the game will end after a given play is θ. If θ is sufficiently
low, can players earn more than they could in the one-shot Nash equilibrium?

Yes. With θ sufficiently low, this resembles the infinitely repeated game.

5. Use the following normal-form game to answer the following questions.

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a. For what values of x is strategy D (strictly) dominant for player 2?

Strategy D is strictly dominant for player 2 when

3 > 7-x

3-7 > -x

X>4

So, for all values of x greater than 4, strategy D is strictly dominant for player 2

b. For what values of x is strategy B (strictly) dominant for player 1?

7-x > 2

-x > -5

X<5

c. For what values of x is (B, D) the only Nash equilibrium of the game?

If Player 1 chooses B, Player 2 have no choices other than to choose D, but when player 2
chooses D, player 1 is not determined to choose B, depends on 7-x > 2, therefore we can
make B,D the only equilibrium by making stretegy B o be the Dominant strategy for player 1.
So,
= 7-x >2
=X<5

6. Consider a two-player, sequential-move game where each player can choose to play right or left.
Player 1 moves first. Player 2 observes player 1’s actual move and then decides to move right or
left. If player 1 moves right, player 1 receives $0 and player
2 receives $25. If both players move left, player 1 receives –$5 and player 2 receives $10. If
player 1 moves left and player 2 moves right, player 1 receives $20 and player 2 receives $20.

a. Write this game in extensive form.

$0 , $25

Right

1 Right
$20 , $20
Left
2
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Left
-$5
b. Find the Nash equilibrium outcomes to this , $10
game.

Nash Equilibrium = ($20,$20) and ( $0, $25)

c. Which of the equilibrium outcomes is most reasonable? Explain.

($20,$20), because player 1 will have choosen left since choosing right, will definetely
have a 0 outcome. But by choosing left, player 1 is letting and trusting the fact that
player 2 would want to receive a higher outcome, therefore player 1 believe that player
2 would’ve choosen right after player 1 choose left, since the outcome of player two
when they choose right after player 1 chooses left, is bigger when they choose Right.

Therefore ($20, $20) is the sub game equilibrium. However, player 2 may have a
strategy to attack player 1, therefore they might choose left, even though it has a lower
outcome for them as well. And forces A to chooses Right. However the threats isn’t
credible.

7. Use the following extensive-form game to answer the following questions.

a. List the feasible strategies for player

1 and player 2.

Player 1 Feasible Strategies: A or B

Player 2 Feasible Strategies: 1 - (WY)W if A and Y if B

2 – (XY)X if A and Y if B

3 – (WZ)W if A and Z if B

4- (XZ)X if A and Z if B

b. Identify the Nash equilibria to this game.

1) Player 1 plays A and Player 2 plays W if A and Y if B. Outcome =(60,120)

2) Player 1 plays B, and Player 2 plays W if A and Z if B. Outcome = (100,150)

3) Player 1 plays B, and Player 2 plays X if A and Z if B. Outcome =(100,150)

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c. Find the subgame perfect equilibrium.

(100,150). When Player 1 Chooses B, if would never make sense for Player 2 to choose
anything related to Y. Player 2 would always be better off with Z. And therefore,
believing that fact, Player 1 would choose B, and Player 2 will choose a strategy that
involves Z, which resulted in the subgame Perfect equilibrium with an outcome of
( 100,150)

And we can also see the fact that from the three nash equilibria, there are two out of 3
outcome that resulted in a better outcome than one of them, which is The (B,Z) route

8. Use the following payoff matrix for a one-shot game to answer the accompanying questions.

a. Determine the Nash equilibrium outcomes that arise if the players make decisions
independently, simultaneously, and without any communication. Which of these out- comes
would you consider most likely? Explain.

There is two Nash equilibrium which are (AX) and (BY). Since this is a one shot games, we
can consider the fact that if there are no ill intention or attack strategy involves in the mind
of both players, than choosing AX is the most logical outcome, Since there is no benefits for
both player to betray the other,Unless one of them wants to attack the other.

So, given that fact,(BY) is the most likely outcome, since it’s the safest strategy that both of
them would have chosen, given that there is no communication and are made
simultaneously for their own benefit without any risk involves.

b. Suppose player 1 is permitted to “communicate” by uttering one syllable before the players
simultaneously and independently make their decisions. What should player 1 utter, and
what outcome do you think would occur as a result?

Player 1 is either going to signal that they’re going to choose A or they may signal the other
player that they’re friendly and doesn’t have any ill intention. Therefore both players would
choose the best options, and the outcome that would occur would be (A,X) which resulted
in (25,25)

c. Suppose player 2 can choose its strategy before player 1, that player 1 observes player 2’s
choice before making her decision, and that this move structure is known by both players.
What outcome would you expect? Explain.
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It would also be (A,X)= (25,25), player 2 would choose X and resulting in player 1 choosing A,
which is the subgame perfect equilibrium.

9. Use the following payoff matrix to answer the following questions.

Suppose this is a one-shot game:

a. Determine the dominant strategy for each player. If such strategies do not exist, explain why
not.

Player 1 Dominant Strategy is A because ( AC>BC), (AD>BD), while player 2 Dominant

Strategy is C because (CA>DA), (CB>DB).

b. Determine the secure strategy for each player. If such strategies do not exist, explain why
not.

Secure Strategy for Player 1 is A, and Player 2 is C

c. Determine the Nash equilibrium of this game. If such an equilibrium does not exist, explain
why not.

Nash Equilibrium is (A,C) Both player would try and belive that the other will cheat or
deviate from BD strategy since this is a one shot game, therefore both would play it the
safest way possible, and resulted in (A,C) which has an outcome of (-10,-10)

10. Using the same payoff matrix as in question 9, suppose this game is infinitely repeated and that
the interest rate is sufficiently “low.” Identify trigger strategies that permit players 1 and 2 to
earn equilibrium payoffs of 140 and 180, respectively, in each period.

The trigger strategy would be for both players to always stay in the BD route, until the other one
betrays the other and resulted in an infinite AC route.

Another way of saying it is Player 1 will always chooses B, until Player 2 deviates from D, and
then Player 1 will always chooses A forever infinitely until both player has trusted the other one
that they won’t betray the other.

And Player 2 will always chooses D, until Player 1 deviates from B, and then Player 1 will always
chooses C forever infinitely until both player has trusted the other one that they won’t betray
the other.
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