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Two individuals are recruited online to play a game. The individuals do not know one another and are each in a separate undisclosed geographic location.
Two individuals are recruited online to play a game. The individuals do not know one another and are each in a separate undisclosed geographic location. In the game, they must each choose to select one of two buttons on their screen. One button is marked 'Send' and the other button is marked 'Keep'. If an individual selects 'Send', $400 will be e-transferred to the other individual. If an individual selects 'Keep', they will receive an e-transfer of $200 (and nothing will be sent to the other individual).
- Write out the normal form of this game and calculate all Nash Equilibria in the game.
- Suppose these two individuals agree to play this game every day, with no future date set for the game to end. Will the outcome of the game change from the equilibria you identified in (a)? Explain why or why not.
- If we allowed the individuals to send each other text messages (at no cost) prior to making their decisions, would the outcomes you predict in (a) and (b) change? Explain.
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