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2. (15 points). Consider a game with two players Ann and Bob, who choose indepen- dently and simultaneously how much effort to exert for a
2. (15 points). Consider a game with two players Ann and Bob, who choose indepen- dently and simultaneously how much effort to exert for a project. Let ea E [0, 1] be Ann's effort and es [0, 1] the effort chosen by Bob. The project succeeds with chance of ex Xeb. A profit of a > 0 will be realised if and only if the project succeeds. In case the project succeeds, the profit will be split equally between Ann and Bob, and thus each gets . The cost of exerting effort level e is ez /4, and thus the utility function is Uilea, (B) zea ea Xeb - e2/4, for i = A and B. (ua is for Ann and up is for Bob.) TT (a) (5 points) Let a 1. Find the set of rationalisable actions for each player. Find all Nash equilibria (c) (5 points) Let a = 1. Find the set of rationalisable actions for each player. Find all Nash equilibria
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