1. Consider the following game, which has been loosely based on the trust modelsstudied in class. For the purposes of this game, focus on pure-strategies only.Each agent moves simultaneously. Agent 1 can take either action T, M or B, whereasAgent 2 can take actions L, C, or R.The payoffs are shown in the following normal form game.1TMBL5,57,10,02C1,74,40,0R0,00,01,1a. Outline and explain the Nash equilibria if the game is played once. (Again, focusonly on pure-strategy equilibria.)b. Now consider the case when the game is played twice. That is, in the first period atthe firm, Agents 1 and 2 simultaneously choose their actions. Their choices arerevealed before in the second period, again the agents simultaneously choose theiractions. Then the game ends. There is no discounting of payoffs between periods. Outline how, as part of a subgame equilibrium that the threat to play either B or R inthe final period rather than M or C can help sustain the cooperative outcome of (T,L)in the first period. Interpret this two-period game as a trust game. Explain why 'trust'(or cooperation) can be achieved in the first period of this game without having toresort to an infinite-horizon game.

Given pay-off matrix Player 2 L C R Player 1 T 5,5 1,7 0,0 M 7,1 4,4 0,0 B 0,0…

1. Consider the following game, which has been loosely based on the trust models studied in class. For the purposes of this game, focus on pure-strategies only. Each agent moves simultaneously. Agent 1 can take either action T, M or B, whereas Agent 2 can take actions L, C, or R. The payoffs are shown in the following normal form game. 2

1. Consider the following game, which has been loosely based on the trust models studied in class. For the purposes of this game, focus on pure-strategies only. Each agent moves simultaneously. Agent 1 can take either action T, M or B, whereas Agent 2 can take actions L, C, or R. The payoffs are shown in the following normal form game. 2

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter15: Strategic Games

Section: Chapter Questions

Problem 3MC

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