4. Consider the following model of a bank run. Depositors may either Hold or Withdrawtheir funds from a bank. Both players hold deposits of 6, which earn interest of 1 if keptin the bank. If either depositor withdraws then the bank fails. If both try to withdrawthen each depositor can only recover half of their deposits. The payoffs for a two-playerversion of this game are given below:Player 2Player 1HoldWithdrawHold7,76,0Withdraw0,63,3 (d) Suppose we now make this game sequential so that Player 2 moves first. Player 1observes Player 2's action and moves second. What are the (pure strategy) Nashequilibria and subgame perfect equilibria of this new game?(e) Give one example of how the players or a third party could prevent a suboptimaloutcome from occurring in this game.

A pure strategy Nash equilibrium is a situation in which no player has the incentive to deviate from…

(d) Suppose we now make this game sequential so that Player 2 moves first. Player 1 observes Player 2's action and moves second. What are the (pure strategy) Nash equilibria and subgame perfect equilibria of this new game? (e) Give one example of how the players or a third party could prevent a suboptimal outcome from occurring in this game.

(d) Suppose we now make this game sequential so that Player 2 moves first. Player 1 observes Player 2's action and moves second. What are the (pure strategy) Nash equilibria and subgame perfect equilibria of this new game? (e) Give one example of how the players or a third party could prevent a suboptimal outcome from occurring in this game.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter8: Game Theory

Section: Chapter Questions

Problem 8.8P

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