Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

NOTE: 1, 2, 3, and 4 are each worth 4 points. The last part of the question is worth 6 points, meaning there is extra

NOTE: 1, 2, 3, and 4 are each worth 4 points. The last part of the question is worth 6 points, meaning there is extra credit possible.

To give Mom and day of rest, Dad plans to take their two children, Aiden and Isabella, on an outing on Sunday.Isabella prefers to go to the amusement park (A), whereas Aiden prefers to go the science museum (S). Each child gets 3 units of gain from her/his more preferred activity, and only 2 units of gain from her/his less preferred activity.Dad gets 2 units of gain from either activity.

To choose their activity, Dad plans first to ask Isabella for her preference, then to ask Aiden after he hears Isabella's choice. If both children choose the same activity, then that is what they will do. If the children choose different activities, Dad will make a tie breaking decision. Dad though has an additional option: he can choose the amusement park, the science museum, or his personal favorite, the mountain hike (M). Aiden and Isabella each get 1 unit of gain from the mountain hike, and Dad gets 3 units of gain from the mountain hike.

Because Dad wants his children to cooperate with one another, he gets 2 units of extra gain if the children choose the same activity (no matter what it is).

  1. Draw the game tree.
  2. What is the equilibrium? Explain your reasoning and prune the tree when you are explaining how you find equilibrium.
  3. Is there a first mover advantage in the game? Explain.
  4. If there is a first mover advantage, what is the source of this advantage? Explain.
  5. Explain what you understand by the following assertion (tell a story): the children will behave the way we would predict based on our equilibrium outcome if the father's threat is credible. In your explanation address two questions:What is the threat and what does it mean to say that it is credible?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored 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

The Economic Development Of Latin America Since Independence

Authors: Luis Bértola, Luis Bértola

1st Edition

0191638242, 9780191638244

More Books

Students also viewed these Economics questions