Introduction to Game Theory

Quiz 4

Time Allowed: 40 minutes Total Marks: 30

Question 1 [20 marks]

Players 1 and 2 play the following game for three rounds:

1/2 A B C
A 2,2 10,10 4,1
B 0,10 8,8 2,8
C 1,4 8,2 5,5

Answer the following questions: [5 marks for each part]

a. Is playing A,A in all three rounds a subgame perfect strategy? Show your reasoning.
b. Can you come up with a subgame perfect strategy where the players play B,B in the first two
rounds? Show your reasoning.
c. Will a strategy where the players play A,A in rounds 1 and 2 and C,C in round 3 be subgame
perfect? Show your reasoning.
d. All Nash equilibria of one shot games will be Nash profiles in finitely repeated games? True/False
and explain your reasoning.

Question 2 [10 marks]

Consider the following game which is repeated infinitely.

1/2 A B C D E
A 1,1 0,4 0,3 3,2 2,5
B 4,0 3,3 8,0 1,1 1,2
C 3,0 0,8 7,7 2,5 0,3
D 2,3 1,1 5,2 6,6 1,2
E 5,2 2,1 3,0 2,1 0,0

The players play the following strategy:

In period t=1 choose to play C. For t>=2 play C if the outcome in the previous period was C,C. Otherwise
play d.

For what value of the discount factor delta will the strategy above be subgame perfect?