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Based on game theory answer the question. 1 To Infinity, and Beyond! - 10 points Figure 1: Modified Prisonners' Dilemma Player B C d Player

Based on game theory answer the question.

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1 To Infinity, and Beyond! - 10 points Figure 1: Modified Prisonners' Dilemma Player B C d Player A C 2, 1 -1, 4 d 3, -3 0, 0 Number left (right) of comma refers to A's (B's) payoff. Consider the above game, played infinitely. Both Player A and Player B have the same discount factor, 6. (a) Suppose that both players follow a grim trigger strategy: play c as long as the other player plays c - if the other player plays d, then subsequently play d forever. Find the minimum & such that this is a SPNE. (5 points) (b) Assume that both A and B are playing some SPNE of the infinitely repeated game. Let VA and VB be A and B's discounted values. What are the lowest values that VA and VB could have? (5 points) (Hint: no calculations are needed. Apply the Folk Theorem.)

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