2023 Assignment 2: Information structure

Team number:
Student name Student # School Hours spend on assignment

Grade composition:
Q1 Q2 Q3 Q4 Q5 Q6

A 2 4 3 3 3 3
B 2 2 3 2 3 4
C 3 2 3 3 3 4
D 3 2 3 3 3 3
E 3 2 3 4
F 2 3 4
G 3 3
H 3
I 1
J
Total 10 10 15 15 25 25

Classifica�on: Internal
 1 (Information set(s) of Player 3) Suppose there are three players. Player 1 decides before
player 2, and player 2 decides before player 3. Player 1 has the choices A and B, player 2 has
the choices C and D, and player 3 has the choices E and F available. Present the extensive
form for each of the following cases the extensive form where player 2 does not observe the
choice of player 1, while player 3 observes
A The choices of the players 1 and 2. Specify an example of a strategy for person 3.
B The choice of player 1, but not the choice of player 2. Specify an example of a strategy for
person 3.
C The choice of player 2, but not the choice of player 1. Specify an example of a strategy for
person 3.
D Neither the choice of player 1 nor the choice of player 2. Specify an example of a strategy
for person 3.

Classifica�on: Internal
 2 (Baker, Cheezy, and Spike) Question 3.8, Watson, page 38.
A Present the extensive form.
B How many possible strategies are there for Baker?
C How many possible strategies are there for Cheezy?
D How many possible strategies are there for Spike?

Classifica�on: Internal
 3 (James Bond) In the James Bond novels, the head of the British intelligence is
clandestinely known as M, while an agent is given the 00 classification has a “license to kill”.
Consider the situation faced by M when she must choose an agent to perform a particular
critical and dangerous mission. As shown in the figure, she has the option of assigning agent
003, agent 007, or both of them. Whoever is given the task must decide between approaching
the mission with D(edication) or Z(eal), where the latter implies a willingness to sacrifice
one’s life. (The rationale behind the payoffs is that each agent is willing to act with Zeal if the
mission only depends on him, but if both agents are assigned, then each believes it is
sufficient to pursue the mission with Dedication.)

A Specify a strategy for M.

B Specify a strategy for agent 003.
C Is the strategy profile consisting of M choosing to assign the mission to both agents and
each agent choosing always to approach the mission with D(edication) a Nash equilibrium?
Explain your answer.
D How many subgames are there in this game? Explain your answer.
E Determine the Subgame Perfect Nash Equilibrium.

Classifica�on: Internal
 4 (Leader’s dilemma) The contribution of players of different size to the provision of a
public good is often not proportional to their size. An example is the contribution of the
members of NATO to their joint defense forces. The USA pays more than its proportional
share of the NATO defense expenses, while a small country like the Netherlands spends less
than the agreed upon 2% of its national income on its defense forces. Another example is the
annual budget of the European Union. Germany pays more than its proportional share of the
annual European Union budget, while some of the smaller countries pay less than their
proportional share.
Consider a pig and a chicken using a joint food supply. The problem is that an effort is
required, for example pushing a button, to make the joint food supply accessible. Assume that
each player decides between P, i.e. pushing the button, or N, i.e. not pushing, and that they
decide simultaneously. The cost of pushing the button is 2.
The food has value 10. If the pig pushes the button, then it eats food representing a value of 9.
The chicken eats the remaining food. The pig eats again 9 and the chicken 1 when they both
push, but each player incurs the cost of 2. If the chicken pushes the button and the pig does
not, i.e. the chicken arrives before the pig at the food supply, then the chicken eats food
representing a value of 5. Finally, the food deteriorates and has value 0 when nobody pushes
the button.
A Present the extensive form.
B Is there imperfect or incomplete information in this game? Explain your answer.
C Provide the strategic form.
D Determine the Nash equilibrium.
E How are the costs of making the food available distributed over the players in equilibrium?
Explain your answer.
F Why is the equilibrium behavior called the leader’s dilemma?

Classifica�on: Internal
 5 (More information may hurt) A decision-maker in a single-decision problem cannot be
worse off if she has more information: if she wishes, she can ignore the information. In a
multi-person decision situation, the same is not true: if a player has more information and the
other players know that she has more information, then she may be worse off. This is
illustrated with the following two-player game.

A What does player 1 know about the choice of Nature and the choice of player 2?
B Present the strategic form.
C Determine and present the Nash equilibrium.
D Specify how much each player earns in the Nash equilibrium?

Now consider the variant of this game in which player 2 knows the choice by Nature, while
player 1 does not. Player 2 does not know the choice of player 1.
E Present the extensive form.
F Present the strategic form.
G Determine and present the Nash equilibrium.
H Specify how much each player earns in the Nash equilibrium?
I Explain why the expected payoff of player 2 in part D is smaller than in part H.

Classifica�on: Internal
 6 (More choice may hurt) Four people must drive from A to B at the same time. Each of
them must choose a route. Two routes are available, one via X, i.e. road AXB, and one via Y,
i.e. road AYB. The part AX and the part YB, are both short and narrow; in each case, one car
takes 6 minutes, and each additional car increases the travel time per car by 3 minutes. (If
two cars drive from A to X, for example, each car takes 9 minutes.) The part XB and the part
AY are long and wide; on XB one car takes 20 minutes, and each additional car increases the
travel time per car by 1 minute; on AY one car takes 20 minutes, and each additional car
increases the travel time per car by .9 minutes.
A How many strategies does a player have?
B Determine Nash Equilibrium.
C What is the average travel time in this Nash Equilibrium?

Now suppose that a relatively short, wide road is built from X to Y. Cars can travel from X to
Y as well as from Y to X.
D How many strategies does a player have?
Assume that a person who takes AXYB travels the AX portion at the same time as someone
who takes AXB, and the YB portion at the same time as someone who takes AYB. (Think of
there being constant flows of traffic.) On the road between X and Y, one car takes 7 minutes
and each additional car increases the travel time per car by 1 minute.
E Determine Nash Equilibrium.
F What is the average travel time in this Nash Equilibrium?
G Explain the difference in travel time between the situation with and without the road
between X and Y.

Classifica�on: Internal