! In the following game, Player 1 makes a low bid or high bid, and Player 2 reacts in aneasygoing or tough manner, resulting in the payoffs below. If the game is played twice, whichactions occur in subgame perfect Nash equilibrium in both rounds?Player 2Tough (T)Easy (E)5, 1Low (L)High (H)Player 1-10, -103, 3-1, 1Low and Easy in both rounds.High and Easy in both rounds.Low and Easy in Round 1, High and Tough in Round 2.High and Easy in Round 1, Low and Tough in Round 2.

Easy Tough Low 5,1 -10,-10 High 3,3 -1,1

Answered: In the following game, Player 1 makes a…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter9: Decision Making Under Uncertainty

Section: Chapter Questions

Problem 69P

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Suppose that you want to invest $10,000 in the stock market by buying shares in one of two companies: A and B. Shares in company A though risky, could yield a 50% return on investment during the next year. If the stock market if conditions are not favorable (bear market) the stock may lose 20% of it value. Company B provides safe investments with 15% return in a bull market and only 5% in a bear market Ali the applications you have consulted are predicting a 60% chance for a bull market and 40% for a bear market. Where you invest your money? Construct a decision tree.
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A retailer must decide whether to build a small or a large facility at a new location. Demand at the location can be either low or high, with probabilities estimated to be 0.4 and 0.6, respectively. If a small facility is built and demand proves to be high, the manager may choose not to expand (payoff = $223,000) or to expand (payoff = $270,000). If a small facility is built and demand is low, there is no reason to expand and the payoff is $200,000. If a large facility is built and demand proves to be low, the choice is to do nothing ($40,000) or to stimulate demand through local advertising. The response to advertising may be either modest or sizable, with their probabilities estimated to be 0.3 and 0.7, respectively. If it is modest, the payoff is estimated to be only $20,000; the payoff grows to $220,000 if the response is sizable. Finally, if a large facility is built and demand turns out to be high, the payoff is $800,000.Draw a decision tree. Then analyze it to determine the…
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