Question

A job candidate is being taken out to dinner by a an interviewer. The interviewer gets to pick therestaurant they will dine (either a chain or a local restaurant). Once at the restaurant, the job candidatewill pick ordering the steak or the salad. The chain restaurant has a better steak while the local restauranthas a better salad. Steaks are more expensive than salads at both restaurants and the local restaurant ischeaper than the chain restaurant.

(Interviewer payoff, Candidate payoff); local vs chain and salad vs steak

local-salad: (4,3)
local-steak: (2,1)
chain-salad: (3,2)
chain-steak: (1,4)

Required:
a. Given the payoff table above, draw the extensive form of the game including payoffs and use backward induction to find the outcome of the game (i.e. which restaurant will they visit and what will the job candidate order?)
b. Write the strategy employed by the interviewer and the strategy employed by the job candidate.
c. Write all the other possible strategies for each player.

Answer 1

Answer and Explanation:

a. They will visit the local restaurant and the job candidate will choose to have salad as an order. Please check the attachment I added for the other parts of the answer.

b. The interviewer would make a choice and choose local restaurant. Based on this choice, the job candidate will choose salad. If the interviewer should choose chain restaurant, the job candidate will choose steak

C. Strategy

The interviewer:

S = {chain,local}

Job candidate:

S = {(steak, salad} multiplied by {steak, salad}

= {(Steak steak), (steak salad), (salad, steak), (salad,salad)}