MGT – Team assignment week 2 1

Mathematics and Game Theory

Team assignment week 2
Solving games

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MGT – Team assignment week 2 2

Exercise 2.1
Consider the following normal form game matrix.

Player 1 / Player 2 U R D L

A 4, 2 1, 0 2, 1 3, 1

B 3, 1 4, 6 1, 0 2, 2

C 2, 4 1, 0 3, 1 4, 2

D 1, 3 2, 0 4, 2 3, 1

a) Determine for player 1 which strategies are strictly dominated (if any).
b) Determine for player 2 which strategies are strictly dominated (if any).
c) Determine the set of rationalizable strategies for both players.
d) Compute the pure strategy Nash Equilibria.
e) Compute the mixed strategy Nash Equilibria.

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Exercise 2.2
Consider two players, Alice and Bob, playing the centipede game. Here is how it works. The players
take turns. At each turn, the player that moves can decide to “take” one pile of 𝑥 coins and give a pile
of 𝑦 coins to the other player thereby ending the game (with 𝑥 > 𝑦). Or the player can decide to
“push”. When “push” is played, the number of coins in each pile is doubled and it’s the other player’s
move. The other player then decides whether to “take” the pile with 2 ∗ 𝑥 and give 2 ∗ 𝑦 coins to the
other player, or to “push”. Each time “push” is played the coins are doubled and the other player
moves. Suppose that the larger pile has three coins in the beginning and the smaller pile one coin. The
game also ends after “push” has been played a total of six times between both players (three times
Alice, three times Bob). In the latter case, the total number of coins from both piles is divided equally
between the players.

a) Represent this game in extensive form.

b) Solve this game by backward induction. What type of equilibrium have you found?

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Exercise 2.3
Consider the following extensive form game.

a) Find all pure strategy Subgame Perfect Nash Equilibria of the game.
b) Find one Nash Equilibrium, which is not SPNE.

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