Question
Austin Beandedicates his life to Industrial Organization and Health Economics. Accordingly, his only life dream is to publish his Ph.D. thesis in Econometrica Journal. When
Austin Beandedicates his life to Industrial Organization and Health Economics. Accordingly, his only life dream is to publish his Ph.D. thesis in Econometrica Journal. When completing the paper, he has to choose between submitting it to the Journal of Political Economics (JPE) - where the paper would be readily accepted and submitting it to Econometrica - where the editor has to decide whether to accept or reject the paper. Austin prefers his paper being accepted to JPE rather than being rejected, yet he prefers if his paper was published in Econometrica even more. Austin happens to know which editor of Econometrica will receive his paper if he submits it to this journal, and he also knows that this editor does not like the topic of the paper, so he wants the paper not to be published in Econometrica, yet he is a friend of Austin's advisor and finds it embarrassed writing a rejection letter to Austin. The preferences of the editor are that he would ideally like the paper not to be submitted to Econometrica at all, but if it already was submitted, then he rather accepts it than having to write the rejection letter.
(a) Represent the players' preferences by a utility function and represent the game in a graph.
(b)Austin is about to submit his paper to Econometrica hoping that the editor won't bother writing a rejection letter. What equilibrium concept does he use in his thought process? Explain.
(c)Austin's wife, who is an economist as well, uses the concept called Forward Induction in her thoughts and argues that he should better submit the paper to JPE because the editor of Econometrica is committed to rejecting his paper in order to prevent him from submitting the paper there at the first place. Represent the game by a payoff matrix and argue why Austin's wife might be right.
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