Answered: Consider the following game Gn, known…

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.5P

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Transcribed Image Text:Consider the following game Gn, known as the Traveler's Dilemma(Basu, 1994). Two business executives incur travel expenses while on a trip but do not have receipts. Their supervisor tells each of them to report a number between 2 and n on their expense sheets. If they report the same number, each will receive this much back; while if they report different numbers, each will get the smaller amount, plus the low reporter will receive an additional $2 (for honesty) and the high reporter will lose $2 (for cheating). Player 2 S2 S3 S4 S5 82 (2, 2) (3,3) Player 1 S3 S4 (4, 4) S5 (5, 5) (a) Fill up the payoffs in the game matrix above. (b) Find a (mixed) strategy which strictly dominates s; for both players. (c) For the remaining reduced game, iterate the elimination of strictly dominated strategy(IESDS) and find the unique strategy profile which survives from the iteration. (d) What is the Nash equilibrium of this game. (e) Can you prove that for n > 3, sn in the game Gn is strictly dominated by a mixed strategy of $2, .., Sn-1?

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