Professor Rod Garratt ECON 171 May 2.2012 This exam is worth a otal of 40 Points. You have I hour and 15 minutes to complete this exam, Good Luck! 1. slave has just been thrown to the fons inthe Roman Colosseum, Thee tons we chaired down ina line wih Lion | closest to the slave. Each lion's chain is short enough that he can ony reach the two players immediatly adjacent to him The game proceeds as follows. First Lion {decides whether or not to eat the slave. IF Lion T has eaten the sive, then Lion ?desides whether oF aot oeat Lion 1 {ho isthe too heavy to defend himse Ir Lion {has not eaten the slave hen Lion 2 las no choice he eannot try to eat Lion | Because a fit would Kill both lions. Similarty. Lion 2 as eaten Lion 1 then Lion 3 decides whether or not to cal Lion’. Each lion's preferences are firly natural best (payotf=4 iso eat and Stay live, next best (payoiP=3) so say alive but go hungry. next (payott=2) is (eat and be eaten, an! worst (payolf=1) sto go hungry and be eaten, “L_ Draw the game tee with payors for his thee player yame. (2 points) Lon i—bien 3 2 2,2, 2 < oe on 7% any or 28 ~ 143 3 dong 33,3 Whats the roltback equilibrium to this game? Make sure to describe the rateies, not just the payoits 2 points) FF ne game gers on 3,he wil alas crouse oat Lon2 vecausé NO Ones (eft To eat hie ee ei! 4) Then, Lon 2, Knowing f he ears Lien Lhe will ne eaten nh (payor 2)’ mal chunse rd nor eat Lion | payer 3.) Lun i teen Venow’ on? ai) nF ent him, So he wi eat he slave, Uimatety tre punter S tor Lon itp cat Gnd MemaneFAPra Lion 2 INCE x © fete istmoteravanag ths ame? Exp. points) Ff 4es,because Cuch |i0n pretes 1» MP stay ave ctor ow aetna Fhan tbo and beeen SO He Bere fon will Never Choose 1 Aat-abe Ins 2 Fst wil always Le Able eat tre nor be eeuEN and2. Consider the following table Row 1. Does iter Row or ColuSe have a donban strategy? point) No, NO One Strategy for either player isaly se iterated elimination of strictly dominated strategies to reduce the same as much as possible, Give the order in which te eliminations occur and show the resulting reduced form of the eame. (3 points) Column 45+ South, South eliminated Dow rire 7Earth, Earth Eliminated Q@@iumn— Easr>nonh, Norkn eliminated ® Lon—-water 7wind, wind ehminaied Column EevedSte eC _ oo | ZS ad (yy «Isthe original same dominance solvable? Explain (1 point) No, ence veduced 1 Easiest and water/Five, seve are nomore clominated cnarempes. Ste the pure stratezy Nash equilibrium (or equilibria) ofthis wame. (2 pints) 3 Besr Kesponse, porh Water, East and Are west ce Nash equiliniy5, Two individuals are involved in a synergistic relationship. I both individuals ‘devote mace otto the relationship they are hath beter of. For any given effort level of individual the ret to individual effort ist ingrcass then dleereass, Specifically, an effort level is a non-negative number, and individual £*S preferences (for /= 1,2) are represented bythe payoff function (+4 where ais effort level and a is the other individuals effort level. Effort levels are chosen simultaneously ‘4 Sketch the rection function for each individual. (3 points) Sy eae ot Bz 4 aar- Be? ee ees os A us 2 8, 'b. State the Nash equilibrium effort levels. @ points) Masn equittonum + » # Uesh equaieaum Cl,4. Suppose you have a pair of dice red die and a white die and you fol chem just ‘once. L2t A be the event that che sum of numbers from the two die add up to 6 and let B bethe event that the red die comes up 5. yey «What is PCA)? P(B)? (2 points) °C 3 5. What is PCAMBY? (1 point) plan 5. Forte game shown below, let p be the probability that Player | plays Up and let qe the probability that Player? plays Left 8. Find the mixed strteuy Nash equilibrium of the following game. (3 points) Player L Whats the expected payotf of player [under the mised strategy’ Nash «cuilbriuim? (1 points)5. Use the minimax method to Find the Nash equilibrium for the following zero-sum ‘same, @ points) Row [Up eS ET ee ipa Down leas ay & srranght, middle 7. Lise sequential elimination of never best responses to solve the following game Column Row State the solution and describe the steps that lead to this solution. (3 points) O for 2ow, Sraight isnever best Dfor Column, Right 1S never best @ for Diumn, Middle 1S never best ® for Low Upis never besh Sp_Down, Left 1Sthe Solunon_8. Considze the ¢wo-round home bargaining zame discussed in class. The minimum he sells wil sell his home tor is $190,000 and the maximum the buyer is willing ‘0 pay is $200,000. Both players know these two amounts and are bargaining ‘over the diference, M=S10.000. Assume the disagreement values are O for both players. Suppose the buyer moves trst By making a proposal and the seller can secept or reject it. Ifthe seller rejects the buyer's proposal the seller gels to make -\counteproposal, which the buyer ean then accept or reject, The game is then ver (Note: it the buyer cejeets in round 2 both the buyer and seller set 0) Suppose that hoth players discount future income using a period discount factor of 5 1. Use rollback 0 find the equilibrium tor this 2 ale price ofthe home? (3 points) TF te seller iS allowed to make @ proposal, he will take all 310000 which 1Sonky worth $0 fo him vy Mirn 2. This, the buyer must offer at least F000l.*): g,000 ia Turn Ore. le pnee - $198,000 round game, What i the b. Suppose the buyer's discount factor was 6°=.5 while the seller's discount fetor remained at 0° =.8? How does your answer fo part a change in this cise? (F poine) Lr doesnt, only the sellers dis(cunt matters Return tothe ease where hoth have the same discount factor of Suppose now that there is no limit tothe number of alternating batzaining rounds and the buyer continues to move frst. What isthe equilibrium, sce inthis ese? (2 points) fa (10,000) a Te, (emer oo / (oe) TT pnce WAOiCOD + (HOL00)Alice, Bob and Charlie are meeting for lune ata park. Each of them has a choice of bringing one onder of sushi or showing up with nothing. They do not to the park. Each person wets a consumption ‘communicate before showi ality equivatent to S20 if there are two or thee orders of sushi and a consumption uty of 0 i there is one ot zeto orders of sushi. Keep in mind, however, thatthe cost toa person of picking up an order of sushi is $10. So overall lity for each person depends an both the number of orders of sushi the troup brings and their own cost ifthey purchased an order themselves, 41) Write this three-player zame down in normal (stratewic) form, ( 2 points) ANCE wor rng Chi he D1 Find the Nash equilibrium ofthis game, (2 points) By esr response, tre equilibna are thar nore of them lnng, Or any of He three grvanuns n ahich 4x0 people bong and ore doecnct (4 equilibna)