Comprehensive form games Consider the following game between two investors. He invested 1000 each in a mutual fund managed by a bank. The bank invests these deposits in long-term projects that last for two periods. If any of the investors withdraw their money in the first period, the bank will have to liquidate their investment and then the total return will be just 1600, less than the total invested. Upon completion of the project, the total return will be divided among 2400 investors. Investors may make withdrawals from the bank only at the end of a period or not at all. At each stage, the decisions to withdraw or not to withdraw are made simultaneously by two investors. 800 each if both are withdrawn in stage 1; if one is drawn and the other is not, the first one gets 1000, the other 600. 1200 each if both are withdrawn in stage 2; In stage 2, if one draws and the other does not, the first one gets 1400, the other 1000. If no one withdraws, the bank gives 1200 to each investor.

(a) Represent the game comprehensively.
(b)Find the pure strategy subgame perfect balance of the game.

Answer rating: 100% (QA)

The game can be represented in extensive form to illustrate the decisionmaking process at each stage Extensive Form Game 1 Initial Decision Investment ... View the full answer