Question

Consider the stage game below, and suppose it is repeated infinitely many times Player 2 D EF A 1,1 1,11,1 PlayerI B 1,8 7,51,1 c | 5,7 | 8,3 | 1,1 To sustain a SPNE in which players play (B,E) in every period by means of a trigger strategy, the discount rate must be larger than or equal to Ob. 1/3 ос. 37

Answer 1

Que Conside* +he stage belou and S40pose i+ is eated i Playce-2. Thece ae tuoo outcome Possible do* -^hir Subgame (f3, ) in jot all petiods including the cuezent periods as the Qunishment is given doceve* There ae wo outcomepossible thi Subgame: B,E) in dot all pexiods including the- puniyhment is given dotevi* deviates in itsị ρexod he coin be able to Secuse 8 in that petiod but wwill eeceive only 1 The playee has no incentive to devate ן the payo devialing ex ceed Jhe pay oji jeom deviating: ji d tom not

deviates in ditst ρetiod he will be able to Secure 8 in thatptでiod but will eceive on! dot each ρeniod đotevcx. Hence the payo deviaing exceed he payottørom devỉajing evialin Hence the cc ect otion if 흑. 애ion