HUL 320: Assignment

April 12, 2024

1. Each of two players receives a ticket on which there is a number in some

finite subset S of the interval [0, 1]. The number on a player’s ticket is the
size of a prize that he may receive. The two prizes are identically and
independently distributed, with distribution function F . Each player is
asked independently and simultaneously whether he wants to exchange
his prize for the other player’s prize. If both players agree then the prizes
are exchanged; otherwise each player receives his own prize. Each player’s
objective is to maximize his expected payoff. Model this situation as a
Bayesian game and show that in any Nash equilibrium the highest prize
that either player is willing to exchange is the smallest possible prize.

2. Armies 1 and 2 are fighting over an island initially held by a battalion

of army 2. Army 1 has K battalions and army 2 has L. Whenever the
island is occupied by one army the opposing army can launch an attack.
The outcome of the attack is that the occupying battalion and one of the
attacking battalions are destroyed; the attacking army wins and, so long
as it has battalions left, occupies the island with one battalion. The com-
mander of each army is interested in maximizing the number of surviving
battalions but also regards the occupation of the island as worth more
than one battalion but less than two. (If, after an attack, neither army
has any battalions left, then the payoff of each commander is 0.) Ana-
lyze this situation as an extensive game and, using the notion of subgame
perfect equilibrium, predict the winner as a function of K and L.

3. Two players are bargaining over 1 unit of money. They will bargain for
T + 1 periods starting from period 0. In even periods (starting at 0),
Player 1 offers a split (ot , 1 − ot ), where ot ∈ [0, 1] is Player 1’s share. If
Player 2 accepts, the game ends. Else, we move to the next period. In
odd periods, Player 2 offers a split. If no split is accepted at the end of
period T , then the game ends with each player getting 0. Money received
in period t is discounted by δ t t, where δ ∈ (0, 1). Find the subgame
perfect equilibrium of this game.
4. Consider the game form in Figure 1. Find the behavioral strategy of player
1 that is equivalent to her mixed strategy in which she plays (B, r) with

1
 probability 0.4, (B, l‘) with probability 0.1, and (A, l) with probability 0.5.

Figure 1:

5. Formulate the following parlor game as an extensive game with imperfect

information. First player 1 receives a card that is either H or L with equal
probabilities. Player 2 does not see the card. Player 1 may announce that
her card is L, in which case she must pay 1 dollar to player 2, or may
claim that her card is H, in which case player 2 may choose to concede or
to insist on seeing player 1’s card. If player 2 concedes then he must pay
1 dollar to player 1. If he insists on seeing player 1′ s card then player 1
must pay him 4 dollars if her card is L and he must pay her 4 dollars if
her card is H. Find the Nash equilibria of this game. Also, represent the
game through a tree diagram.