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**Solutions to problems 4.1 a and b, and 4.3 a and b from Robert Gibbons
**

(1992) A primer in game theory, pp 245-247

4.1a We transform the game into normal form.

L’ R’

L 4,1 0,0

M 3,0 0,1

R 2,2 2,2

Nash-equilibria: ¦L; L

0

¦ and ¦R; R

0

¦ : There are no proper subgames;

so these equilibria are subgame perfect.

To …nd the Perfect Bayes Nash equilibria, consider sequential rationality

of player 2. As a function of his belief p, the payo¤ from choosing actions L’

is

p + (1 ÷p) 0 = p

and the payo¤ from choosing R’ is

p 0 + (1 ÷p) = 1 ÷p

Thus, for player 2, playing L’ is sequentially rational, given his belief if

p _

1

2

Playing R’ is sequentially rational given his belief for any

p _

1

2

Hence: the perfect Bayes Nash equilibria are ¦L; L

0

¦ and p = 1 (this informa-

tion set is reached on equilibrium path, so the belief is determined by Bayes

Rule and Player 1’s strategy) and ¦R; R

0

¦ and p _

1

2

(this is o¤ equilibrium

path, so there are no restrictions from Bayes Rule).

1

4.1b Transform the game into normal form.

L’ M’ R’

L 1,3 1,2 4,0

M 4,0 0,2 3,3

R 2,4 2,4 2,4

The pure strategy Nash-equilibrium is ¦R; M

0

¦ : There are again no

proper subgames, so this equilibrium is automatically also subgame

perfect. To compute the perfect Bayes Nash equilibria, consider again

sequential rationality of player 2. As a function of his belief p his

expected payo¤ from choosing L

0

is

p 3 + (1 ÷p) 0 = 3p

his expected payo¤ from choosing M

0

is

2 p + 2 (1 ÷p) = 2

and his expected payo¤ from choosing R

0

is

0 p + 3 (1 ÷p) = 3 (1 ÷p)

Choosing M

0

is optimal if 2 _ 3p = p _

2

3

and 2 _ 3 (1 ÷p) =

1

3

_ p:

Thus, Perfect Bayes Nash equilibria are ¦R; M

0

¦ and any p ¸

1

3

;

2

3

:

4.3a Suppose pooling on R is part of an equilibrium. What are the implica-

tions?

Let p denote Pr [ t = t

1

[ R] : Since this belief is on equilibrium path, we

must have p =

1

2

: Consider sequential rationality of player 2 given this belief.

The expected payo¤ from choosing u is

p 1 + (1 ÷p) 0 = p =

1

2

2

the expected payo¤ from choosing d is

p 0 + 2 (1 ÷p) = 2 (1 ÷p) = 1

So, player 2 will play d:

The implied payo¤s for types t

1

and t

2

are as follows:

t

1

gets 3 and t

2

gets 2.

What would happen if player 2 would observe L being played? It is

important to know this, since beliefs at this information set will be part of

the equilibrium. Let q denote Pr [ t = t

1

[ L] : The expected payo¤s of player

2, after a choice of L by player 1, as a function of q are as follows.

Expected payo¤ from playing u

2 q + (1 ÷q) 0 = 2q

Expected payo¤ from playing d

0 q + (1 ÷q) 1 = 1 ÷q

Player 2 strictly prefers to play u if and only if 2q > 1 ÷ q = q >

1

3

and

prefers to play d if q <

1

3

: (he is indi¤erent for q =

1

3

).

If player 2 has a belief q >

1

3

; then he would play u if player 1 were to play

L; so the payo¤s of type t

1

and t

2

from deviating to L would be as follows:

t

1

would get 1 and

t

2

would get 0.

Given this belief, no type has an incentive to deviate; so this is consistent.

If the belief were q <

1

3

; then type t

2

could obtain a payo¤ of 3 from

deviating; since this is better than the payo¤ 2 in the proposed pooling

equilibrium on R; he would have an incentive to deviate.

Conclusion: equilibria that involve pooling on R are ¦R; R; d (if R); u (if L)¦

and any belief q >

1

3

:

4.3b Pooling equilibrium where all sender types play L: Let q = Pr [ t = t

1

[ L]

and r = Pr [ t = t

2

[ L] : Since this is on equilibrium path, we have q =

r =

1

3

:

3

Player two will always play u following L since his payo¤ from d is zero

all the time.

The payo¤s of the sender types are as follows:

t

1

gets 1

t

2

gets 2

t

3

gets 1

What beliefs o¤ equilibrium path make this part of an equilibrium?

Let p = Pr [ t = t

1

[ R] and s = Pr [ t = t

2

[ R] :

Player 2’s payo¤s as a function of his beliefs for actions u and d are as

follows:

action u:

p 1 + s 1 = p + s

action d :

(1 ÷p ÷s) 1 = 1 ÷p ÷s

So it is easy to see that player 2 strictly prefers to play u if p + s >

1

2

: He

would strictly prefer to play d if p + s <

1

2

:

The payo¤s of the sender types from choosing R would be

for p + s >

1

2

t

1

would get 0

t

2

would get 1

t

3

would get 0

for p + s <

1

2

t

1

would get 0

t

2

would get 1

t

3

would get 2

Thus: perfect Bayesian equilibria that involve pooling on L : ¦L; L; L; u(if L) ; u(if R)¦

and any p + s >

1

2

:

4

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