Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

2. Three drivers are racing towards a narrow tunnel which is only wide enough for two cars at a time. Each driver faces a choice

image text in transcribed
image text in transcribed
2. Three drivers are racing towards a narrow tunnel which is only wide enough for two cars at a time. Each driver faces a choice to go straight (G'S) or to swerve (S). If they all play G'S, they will suffer serious injury and get payoffs equal to -8. If at least one driver swerves, the payoff to the driver(s) that swerved is 0 whereas the payoff to those that went straight is 1. The game is illustrated in the following table: Driver 3 -8-8,-8 1,0,1|1,1,0 1,0,0 01,1 0,0,1[01,0 0,0,0 (a) Identify all pure-strategy Nash equilibria. (3 marks) (b) Identify all Pareto efficient outcomes of the game. (3 marks) (c) Is there a mixed strategy Nash equilibrium of the game and what is the payoff to each player in this equilibrium? (6 marks) (d) Consider the following mechanism. An 'umpire' uses a randomisation device to select one cell in the game matrix with the probabilities shown in the following table: Driver 3 Driver 1, Driver 2 Show that this mechanism can be supported in a correlated equilibrium, and compute each driver's payoff. (6 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting Principles

Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso

10th Edition

1119491630, 978-1119491637, 978-0470534793

Students also viewed these Economics questions