Question

QUESTION 4. Consider the following game. Player 1’s payoffs are listed first, in bold: Player 2 X Y Player 1 U 100 , 6 800 , 4 M 0 , 0 200 , 1 D 10 , 20 20 , 20 a. Imagine that Player 1 makes a decision first and Player 2 makes a decision after observing Player 1’s choice. Write down every subgame-perfect Nash equilibrium of this game. b. Does the outcome above differ from the Nash equilibrium (if the game were played simultaneously)? Carefully explain why, intuitively, the result differs or does not differ.

Answer 1

attached below is remaining part of the detailed solution

A) SPNE = ( M,Y )

B) PSNE = ( U,Y )

Step-by-step explanation:

A) write down every subgame-perfect Nash equilibrium of the game

attached below

The second player can observe the first player's choice before making his own choice and the first player will always play M knowing that the second player will observe him, also the second player will play Y

Therefor the SPNE of the game will be : ( M,Y )

B) If the game were played simultaneously the results will be different and this is because the second player doesn't have the information of what the first player played

Therefore the PSNE of the game will be : ( U,Y )