Economics > QUESTIONS & ANSWERS > Harvard University - ECON 1051Problem Set 10 Solutions (All)

Harvard University - ECON 1051Problem Set 10 Solutions

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Problem Set 10 Solutions Attila Ambrus, Economics 1051, Spring 2011 Solutions prepared by Zhenyu Lai ([email protected]). Please email for any clari…cations. 1. In…nitely Repeated Hawk and ... Dove Game. Suppose that = 0:99. Construct a SPE in the in…nitely repeated version of the following game in which player 1’s normalized payo¤ (1-)PDV 1 is larger than 5. For what other discount factors is your construction a SPE? Dove Hawk Dove 3; 3 0; 8 Hawk 8; 0 1; 1 Solution. The most straightforward way to achieve a normalized payo¤ of at least 5 is to alternate between payo¤s of 3 (from (Dove, Dove)) and 8 (from (Hawk,Dove), (Dove, Hawk)). With this in mind, we construct the following grim trigger strategies. Player 1: Play Hawk in odd periods, Play Dove in even periods, if nobody has deviated before Play Hawk in remaining periods, if somebody has deviated before Player 2: Play Dove, if nobody has deviated before Play Hawk in remaining periods, if somebody has deviated before First, we check if these strategies satisfy the condition that player 1’s normalized payo¤s are at least 5 in equilibrium when = 0:99 [Show More]

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