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QUESTION 14 [10 Marks] Smuts and Andile have both invested in Elephant Copper Mines Ltd. Each must decide whether to Sell our or to Hold

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QUESTION 14 [10 Marks] Smuts and Andile have both invested in Elephant Copper Mines Ltd. Each must decide whether to Sell our or to Hold onto their shares. If they both hold onto their shares, the market price of their shares will increase substantially. But if one or both of them chooses to sell, the market will lose confidence and the share price will suffer a major decline. This simultaneous-move game is represented by the table below. Andile Hold Sell Smuts Hold R10m, R10m R1m, Rom Sell R8m, Rim R3m, R3m 14.1 Explain why in a mixed strategy Nash equilibrium each player must be indifferent between the pure strategies that are used in her mixed strategy. [2] 14.2 Find a Nash equilibrium in mixed strategies in this game using the indifference [3] 14.3 How will the mixed strategy Nash equilibrium be affected if the payoff that the players get from both holding their investments are increased (keeping all other payoffs the same)? [2] 14.4 How can this change in mix probabilities be interpreted in terms of the players' uncertain subjective beliefs? [3]

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