Question

1. Concept (a) Write the definition for SPNE. Show the relationship between NE and SPNE in a Venn graph (b) Use the Ultimatum Game in which Player 1 is endowed with 5 dollars. 1. Explain the idea of a credible threat and an incredible threat. Give one example for each of them. 2. This is one motivation for having SPNE in addition to NE. Explain why. (c) In a Stackelberg game, when two firms have the same constant marginal cost, which player has an advantage? Is this game strategic substitute or complement? (d) Summarize as much as you know about the one-period Continuous Ultima- tum Game with P2 having an outside option of z E [0, 1] (e) What is a stage game? What is a repeated game? How can we interpret the discount factor?

Answer 1

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