Question: question below please answer Consider an innitely repeated game with discounting 6 e (0, 1) with the following stage game. (a) Construct a SPE in

question below please answer

question below please answer Consider an innitely repeated game with discounting 6

Consider an innitely repeated game with discounting 6 e (0, 1) with the following stage game. (a) Construct a SPE in which (U, L) is played in every period on the equilibrium path. Describe the strategies and state any necessary conditions on 6. (10 POINTS) (b) Now suppose 6 = 0.7. Construct a SPE in which (U, L) is played in every period on the equilibrium path. Describe the strategy prole and show that it is a SPE (i.e. that players do not wish to deviate). (20 POINTS) HINT: Construct a punishment for player 1 that is more severe than grim trigger Nash reversion. Make sure to specify what happens if someone deviates during the punishment. Check deviations at every class of history

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Economics Questions!