Players 1 and 2 are leaving the house and need to decide whether or not to bring an umbrella. They know there's a 75% chance that it will rain (thanks AccuWeather). If they don't bring an umbrella and it rains they receive a payoff of -7. If they do bring an umbrella and it rains, they receive a payoff of -4. If it doesn't rain, but they bring an umbrella they receive a payoff of -2. Finally, if it doesn't rain and they don't bring an umbrella they receive a payoff of 2. Player 1 learns the weather before they leave the house, but player 2 does not. Player 2 can, however, observe player 1s choice. (a) Represent this game in the extensive form. i. Use backwards induction to solve for the Nash equilibrium (b) Represent this game in the normal form i. Solve for the Nash equilibrium (c) Are the equilibrium strategy profiles the same in a) and b)? Explain why or why not.

Players 1 and 2 are leaving the house and need to decide whether or not to bring an umbrella. They know there's a 75% chance that it will rain (thanks AccuWeather). If they don't bring an umbrella and it rains they receive a payoff of -7. If they do bring an umbrella and it rains, they receive a payoff of -4. If it doesn't rain, but they bring an umbrella they receive a payoff of -2. Finally, if it doesn't rain and they don't bring an umbrella they receive a payoff of 2. Player 1 learns the weather before they leave the house, but player 2 does not. Player 2 can, however, observe player 1s choice. (a) Represent this game in the extensive form. i. Use backwards induction to solve for the Nash equilibrium (b) Represent this game in the normal form i. Solve for the Nash equilibrium (c) Are the equilibrium strategy profiles the same in a) and b)? Explain why or why not.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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