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Question 4. Consider the following strategic situations. Agent i has action set A; with represen- tative action a;. Agent 1 moves first, selecting an action
Question 4. Consider the following strategic situations. Agent i has action set A; with represen- tative action a;. Agent 1 moves first, selecting an action a, from A1. Then, having observed the choice of 1, agent 2 makes a choice a2 from A2. 21 (a1, a2) = a1(4+ 02 - 01) 12(a1, a2) = a2(4 + a1 - a2) 1. Suppose that agent 1 has three possible choices: A1 = {1, 2,3} and agent 2 has three possible choices: A2 = {4, 5,6}. Draw the extensive form of the game and solve by backward induction. 2. Suppose instead that A1 = [0, co) = A2. Find the equilibrium (a1, a2), (where again, 1 moves first and then 2 moves having observed the action of 1
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