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The question i want answers to is question 3, question 2 is only posted because it is needed to answer question 3. 3. A commonly

The question i want answers to is question 3, question 2 is only posted because it is needed to answer question 3.

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3. A commonly used alternative to a grim trigger strategy is called a tit- for-tat strategy, where instead of punishing a player who deviates from the proposed profile by never cooperating again, the other player only retaliates in the next stage. After this, a player will return to cooperating if the other did not retaliate in return. a) Utilising a game from Problem 2, try to construct a profile of tit-for-tat cooperating strategies that constitute SPNE and find the smallest discount factor that can support these. b) Using the results from 3a) and 2b), compare grim trigger and tit-for- tat strategies and discuss which one seems more reasonable to use and why.2. Two neighbouring countries have to decide whether they want to go to war or remain at peace. If countries remain at peace, their payoff is 1. If one country decides to go to war, its payoff is 4, while the other's is -2. If both countries go to war, their payoffs are -1. a) Assume the game lasts for five periods. Find all subgame-perfect Nash Equilibria. b) Now assume the game lasts infinitely. Formulate a profile of grim trig- ger strategies which rewards countries that stay at peace indefinitely and find the smallest discount factor that can support such strategies as a subgame- perfect NE

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