Question
Needing help with this practice problem in order to fully understand. The document linked below (Discussion 4.1.jpg) contains a decision tree showing a sequential game
Needing help with this practice problem in order to fully understand.
The document linked below ("Discussion 4.1.jpg") contains a decision tree showing a sequential game between two firms, Firm 1 and Firm 2.Firm 1 moves first, with four possible choices (H, M, L, and N).Firm 2 then moves with the same set of choices, so there are 16 possible outcomes with the payoffs as shown.(1) Which choice will Firm 1 make?(2) What choice will Firm 2 make?(3) What are the resulting payoffs?
NOTE:If answering this question, please assume that each firm cares only the magnitude of its own payoff, and it cares nothing about magnitude of the payoff of the other firm.(If you believe that a firm might want to maximize the DIFFERENCE between its profits and those of its rival, you may then interpret the payoffs in the chart as somehow reflecting those concerns.)
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