Trading envelopes (harder) Julie flips a fair coin. If the coin lands head-up, she puts $10 in envelope one and $100 in envelope two. If the coin lands tails-up she puts $100 in envelope one and $1,000 in envelope two. She then mixes up the envelopes and gives them to Alice and Berta. Alice and Berta look in their own envelopes, but not each other's. Simultaneously, they each choose whether to trade (T) or not (NT). The trade only occurs if they both choose trade. 1. What is the type space for Alice? 2. What is the strategy set for Alice? 3. Find all of the pure strategy Bayesian Nash equilibria.

Trading envelopes (harder) Julie flips a fair coin. If the coin lands head-up, she puts $10 in envelope one and $100 in envelope two. If the coin lands tails-up she puts $100 in envelope one and $1,000 in envelope two. She then mixes up the envelopes and gives them to Alice and Berta. Alice and Berta look in their own envelopes, but not each other's. Simultaneously, they each choose whether to trade (T) or not (NT). The trade only occurs if they both choose trade. 1. What is the type space for Alice? 2. What is the strategy set for Alice? 3. Find all of the pure strategy Bayesian Nash equilibria.

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 15.1IP

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