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1. a. The extensive form and find the SPE. Payoffs are in the form (Member A, Chairperson).

(2, 1) Chairperson (4, 2)
Member A

(1, 3) Chairperson (3, 4)
Subgame Perfect Equilibrium (SPE) is [(x), (X & Y, X & Y)] for (4, 2)

b. The chairperson would have reason to try and alter the outcome of the game with a strategic move. There is a first mover advantage in this game because whatever policy is gets proposed will end up getting passed. The chairperson has a couple of strategic moves available 1. Unconditionally committing to gain a ‘first-mover advantage’ will not work because it can only reduce his/her payoff; if he/she commits to Y, then the result would be [(X), (Y)] (2, 1) and if he/she commits to X & Y the payoff will stay the same at (4, 2).
 If the rules of the game could be changed by using the role as chairperson to become the first mover; for example, “Chairperson chooses to vote before all members”. This would give a new option “How would Member A react to Y being proposed? X for (1, 2) or X & Y for (4, 3)?” (payoffs are in the form Chairperson, Member A since the order is changed). This would get the desired payoff, but because this option is likely impossible, it should be disregarded. Explicitly Threaten to vote for Y if Member A votes for only X Implicitly Promise to vote for X & Y if Member A votes for X & Y.

2. Use a conditional threat & promise to change Member A’s initial vote
 

This would give the chairperson max payoff. Since we can assume the threat is credible, this would also benefit Member A because if he/she proposes only X, then his/her payoff would be 2; however, under the threat & promise the payoff would be 3.

Aggressive)] for (3. The US moves first and the USSR moves second. (Aggression)] for (2. 2) b. i. Using the formula of (Column Max. Row Max) for a Nash Equilibrium [(Aggression). Payoffs in the form of (US. 3) (1. 2) Subgame Perfect Equilibrium: [(Aggressive). The USSR moves first and the US moves second. (Restrained. Payoffs in the form of (USSR. 2) ii. Aggressive)] for (2. 4) . Subgame Perfect Equilibrium: [(Restrained).2. 4) (3. 1) (2. USSR US USSR (4. (Aggressive. USSR). a. US).

This is assuming there is no credible strategic moves that would end with the (Restrained. 2) Subgame Perfect Equilibrium: [(R.). Row Max) b. US). if the USSR is the first mover. This is shown in i. the US moves second. it is in the US’s best interest to always go Aggressive. 1) (1. -2) by the formula (Column Max. 3) (2./A. however. d. a. As long as the USSR moves after them. Sequentially./A. -2) Punish (-2. but the USSR has a further move in which they can change their first move. (Not Punish)] for (1. The USSR moves first. ii. and iii. USSR US USSR USSR USSR US USSR (3. they will go Aggressive because if the go restrained the USSR will opt for their highest payoff. 1) (1. child moves first . which is the outcome if the USSR moves last. 3) (2./A./A.iii./A. -3) Nash equilibrium is [(Bad). Restrained) result. 2) (3. Payoffs q are written in the form of (USSR. Both the US and the USSR are best off when the USSR is not the last mover.. A.. 3. which is the lowest for the US. the equilibrium is higher than it would be if they had both been Aggressive. This is because if the US moves before the USSR. 2) c.)] for (2. -1) (-1. it would not be in their best interest to go aggressive. 4) (4. Simultaneous-move game Child\Parent Good Bad Not Punish (0. (A.. 4) (4. 0) (1.

-2) d. (Punish. -1) (1. Four Strategies 1. which is not in the parent’s best interest as well as the implied action that would be in both of their best interests. 2. 0) (-2. (Not Punish. Not Punish)] for (1. Not Punish) – The parent will punish a good behavior. 3. Punish)] for (0. -2) (Not Punish. 0) 3. (Not Punish. but will punish a bad behavior. 0)  This is the ideal situation for the parent and is a result of the strategic move of a threat or promise. -2) 2. -2) . punishing a bad action. Row Max) 1. -2) (-1. (Punish. the explicit threat of “I will punish you if you are bad” and illicit promise to “not punish you if you are good. (Not Punish.” This contains an irrational part. For example. Not Punish)] for (1. Subgame Perfect Equilibrium: [(Bad). (Not Punish.Parent (0. Not Punish)] for (1. [(Bad). Child\Parent Good Bad N 0 1 N 0 -2 N 0 -1 P 0 -3 P -2 1 N -1 -2 P -2 -1 P -1 -3 Using the formula for a Nash equilibrium of (Column Max. Punish) – The parent won’t punish a good behavior. (Punish. [(Good). Punish)] for (0. (Not Punish. Not Punish) – The parent won’t punish a good behavior or a bad behavior. (Punish. [(Bad). Punish) – The parent will punish both good and bad behavior. -3) Child Parent c. [(Bad). but won’t punish a bad behavior. [(Good). 4. Not Punish)] for (1.

(Intervene)] for (3. 3). it is second worst for Europe. Explicit Promise: “I will intervene if you intervene” The goal is to change the payoff to (2. because the parent is punishing a good behavior and not punishing a bad behavior. assuming both are credible: 1. furthermore. c. 1) Since the equilibrium is the best situation for the US they have no incentive to try and change. This action is not a strategic move because it does not result in a higher payoff than the SPE. regardless of which action Europe choses. Normal form US\Europe Intervene Not Intervene Intervene (2. 4. No. 1) Not Intervene (0. a. 2). however. the threat to not intervene if the US won’t intervene is aimed to encourage the US to intervene since their payoff (2) would be greater than if nobody intervened (1). but this also requires the promise that Europe will intervene with them to prevent the situation where the US intervenes. 3) (1. but Europe does not (0. b. then the US will not intervene. 2) (3. 0) Using (Column Max. Row Max) the pure strategy Nash equilibrium is: [(Not Intervene). Europe is the only player with a reason to attempt a strategic move to alter the outcome of the game. Explicit Threat: “I won’t intervene if you don’t intervene. if Europe commits to intervening. Europe could make two statements. It is a dominant strategy for the US to not intervene. the US will not intervene.” 2. The other option for Europe would be to commit to not intervene. therefore. This equilibrium is essentially nonsense. therefore. . if they do this then the US will not intervene as well.