Ex. 5-- Agenda SettingAn agenda-setting game is described as follows. The "issue space" (set of feasible poli-cies) is an interval X = [0,5]. An agenda setter (player 1) proposes an alternative x = Xagainst the status quo q = 4. After player 1 proposes x, the legislator (player 2) ob-serves the proposal and selects between the proposal x and the status quo q. Player 1'smost-preferred policy is 1, and for any final policy y = X his payoff is given byv1(y) = 10|y — 1|,-where |y1| denotes the absolute value of (y-1). Player 2's most preferred policy is 3,any final policy y Є X he payoff is given byand forv2(y) = 10|y3|.That is, each player prefers policies that are closer to his/her most-preferred policy.(1) Write down the strategic-form representation of the dynamic game.(2) Find a subgame perfect Nash equilibrium. Is it unique?

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Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter8: Game Theory

Section: Chapter Questions

Problem 8.7P

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