Y5

Question-1 [18 marks] You are working with a friend on a presentation for your principal level economics course. Both of you can either work hard or free ride. Given you and your friend have similar self-interested preferences, the game can be modelled in strategic form as follows: Friend Work hard Free ride You Work hard 20, 20 0, 30 Free ride 30, 0 10, 10 a) Solve for the simultaneous version of this game using best response strategy. Is this game an example of the Prisoner's Dilemma? why or why not? [2+2] b) You and your friend promise each other that you will both work hard on the final project. Is such a promise credible? Explain. [3] c) Now suppose the game is played sequentially. Draw a game tree where 'You' move first and then a tree where your 'friend' moves first and solve using backward induction. Is there a first mover advantage? [6] d) Suppose (in the sequential play) 'You' are the first mover, and you know that your friend has strong reciprocal preferences. What would you do? Will the outcome change? [3] e) If you are to do the project twice with the same friend. Is it possible for a different outcome to occur? [2]