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PBE stands for perfect Bayesian equilibrium 1. In period 1 of this game, poyer (company) 1 can either spend the amount of money equal to

PBE stands for perfect Bayesian equilibrium

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1. In period 1 of this game, poyer (company) 1 can either spend the amount of money equal to b = '2 or not do so. If it (100888 to make that spending, it constitutes a corresponding subtraction from the payoff. ln period 2, player (company) 2 has two options: entering a (business) agreement with player 1 or avoiding doing so. Player 1 can be of either high or low type (and knows its own type). Player 2 believes that player 1 is of high type With probability i. If player 2 enters into an agreement with player 1 and if player 1 is of high type, the payoff of player 1 is equal to 3 and the payoff of player 2 is equal to 2. If player 1 is of low type, the payoffs are 1 and -1, respectively. If the agreement is not entered, the payoffs of all players are equal to 0. Assuming that neither player uses a mixed strategy, nd all PBE of this game. Indicate whether either PBE is separating or pooling and whether it - involves any arbitrarily determined parameters (like, for example the PBE of the court game, that was dicussed in Class)

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