Question
Alex is deciding whether to make a loan to Brian who is very poor and who has a bad credit history.Simultaneous to Alex making this
Alex is deciding whether to make a loan to Brian who is very poor and who has a bad credit history.Simultaneous to Alex making this decision, Brian must decide whether or not to buy gifts for his grandkids. If he buys gifts, he will be unable to repay the loan. If he does not buy gifts, he will repay the loan. If Alex refuses to give Brian a loan, then Brian will have to go to a loan shark.
If Alex refuses to make a loan to Brian and Brian buys gifts then both Alex and Brian get 0. If Alex refuses to make a loan to Brian and Brian does not buy gifts then Alex gets 0 and Brian gets -1.If Alex makes a loan to Brian and Brian buys gifts then Alex gets -2 and Brian gets 7. If Alex makes a loan to Brian and does not buy gifts, then Alex gets a payoff of 3 and Brian gets a payoff of 5.
a)Identify players in this game[4 marks]
b)What are their strategies[8 marks]
c)Construct the matrix with their payoff[8 marks]
d)Does the game have a dominant strategy and nash equilibrium?[5 marks]
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