Trading envelopes Julie flips a fair coin. If the coin lands heads up, she puts $10 in an envelope and if the coin lands tails up she puts $1,000 in an envelope. Julie then gives the envelope to Alice, and gives $100 to Berta. Alice can look in the envelope to see how much money is inside, but Berta cannot see inside the envelope. However, everyone knows that Berta has $100. Simultaneously, Alice and Berta each choose whether to trade (T) or not (NT). The trade only occurs if they both want to trade. 1. What is the type space for Alice? 2. What is the strategy set for Alice? 3. What is the strategy set for Berta? 4. Find all of the pure strategy Bayesian Nash equilibria.

Trading envelopes Julie flips a fair coin. If the coin lands heads up, she puts $10 in an envelope and if the coin lands tails up she puts $1,000 in an envelope. Julie then gives the envelope to Alice, and gives $100 to Berta. Alice can look in the envelope to see how much money is inside, but Berta cannot see inside the envelope. However, everyone knows that Berta has $100. Simultaneously, Alice and Berta each choose whether to trade (T) or not (NT). The trade only occurs if they both want to trade. 1. What is the type space for Alice? 2. What is the strategy set for Alice? 3. What is the strategy set for Berta? 4. Find all of the pure strategy Bayesian Nash equilibria.

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter22: Frontiers Of Microeconomics

Section: Chapter Questions

Problem 6PA

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