Economics 398: Strategy, Winter 2019

Problem set 6
Please write down your name and the date of your discussion section.
Due date: Thursday, March 28th, in class.

1 Applications
1. Consider the following dynamic game between players 1 and 2. Player one can
chose two actions, L and R, and player two can chose, after observing player’s
one move, an action from {a, b, c, d}. In particular, player 2 can chose either a
or b after 1 picks L and either c or d after 1 picks R. Payoffs are as follows: if
player 1 picks L, then she gets 10 and player 2 gets 3 if player 2 picks a, but
she gets 2 and player 2 gets -1 if player 2 picks b. Alternatively, player 1 gets
2 and player 2 gets 3 if player 1 picks R and player 2 pick c, and player 1 gets
4 and player 2 gets 7 if player 1 picks R and player 2 pick d.

a. Draw the extensive-form representation of this game.

b. Is this a game of imperfect information; why? what are the information
sets of each player?
c. What are the strategies of these players?
d. Write the normal-form representation of the game and find all the pure
NE.
e. Are there NE that are not sequentially rational? If “yes”, explain why.
f. Find the Backward induction solution of the game. Is it sequentially
rational? Why?
g. Given the BI solution you found in e., what information sets are off-path?

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 2. Consider the following dynamic game between players 1 and 2. Player one can
chose two actions, L and R, and player two can chose, after observing player’s
one move, an action from {a, b, c, d}. In particular, player 2 can chose either a
or b after 1 picks L and either c or d after 1 picks R. Payoffs are as follows: if
player 1 picks L, then she gets 0 and player 2 gets 10 if player 2 picks a, but
she gets -3 and player 2 gets 2 if player 2 picks b. Alternatively, player 1 gets
3 and player 2 gets 1 if player 1 picks R and player 2 pick c, and player 1 gets
-6 and player 2 gets -2 if player 1 picks R and player 2 pick d.

a. Draw the extensive-form representation of this game.

b. Is this a game of imperfect information; why? what are the information
sets of each player?
c. What are the strategies of these players?
d. Write the normal-form representation of the game and find all the pure
NE.
e. Are there NE that are not sequentially rational? If “yes”, explain why.
f. Find the Backward induction solution of the game. Is it sequentially
rational? Why?
g. Given the BI solution you found in e., what information sets are off-path?

3. Consider the following dynamic “penalty” game:

L R O
2 2

a b a b a b

a. Is this a game of imperfect information; why? what are the information

sets of each player?
b. What are the strategies of these players?

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 c. Write the normal-form representation of the game.
d. Is there some information set that is off-path for either of the players?
why?

4. Consider again the dynamic game in 3.

a. Suppose that player 2 observes whether player 1 has kicked out but not
whether he kicked left or right. Draw the extensive-form of this new game.
a.1 Is this a game of imperfect information; why? what are the information
sets of each player?
a.2 What are the strategies of these players?
a.3 Write the normal-form representation of the game.
a.4 For each information set of player 2, give a strategy for each player for
which that information set is off-path.

b. Suppose that player 2 observes whether player 1 has kicked to the right,
but not whether he kicked left or out. Draw the extensive-form of this
new game.
b.1 Is this a game of imperfect information; why? what are the information
sets of each player?
b.2 What are the strategies of these players?
b.3 Write the normal-form representation of the game.
b.4 For each information set of player 2, give a strategy for each player for
which that information set is off-path.

c. Suppose that player 2 can chose between three actions, a, b and c, when-
ever player 1 kicks to the right, but only between a and b whenever player
1 kicks in any other direction.
c.1 Draw the extensive-form of this new game.
c.2 Suppose that player 2 observes if player 1 kicks outside. Is it possible that
player 2 doesn’t observe whether player 1 has kicked left or right? why?

5. Let’s revisit the dynamic penalty game we saw in class where G always
observes what action K chooses.

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 a. Find all the pure NE.
b. What NE are not sequentially rational? why?
c. Apply the backward induction procedure. How many solutions do
you find?

6. Consider a dynamic version of matching pennies, where player 1 moves

first and player 2 gets to observe whether player 1 picked heads or tails.
a. Find all the pure NE.
b. What NE are not sequentially rational? why?
c. Apply the backward induction procedure. How many solutions do
you find?
d. Are the players better or worse-off with respect to the static version
of the game? why?

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