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MATH4321 Game Theory
Assignment 2 Submission deadline of Assignment 1: 11:59p.m. of 4th Apr, 2023 (Tue) Instruction: Please complete all required problems. Full details (including (i) description of methods used and explanation, (ii) key formula and theorem used and (iii) final answer) must be shown clearly to receive full credits. Marks can be deducted for incomplete solution or unclear solution. You may earn extra score by completing some bonus problems. Also, additional score will be given for well- written assignment. Please submit your completed work via the submission system in canvas before the deadline. Late assignment will not be accepted. Your submission must (1) be hand-written (typed assignment will not be accepted, you may write on ipad if you wish), (2) in a single pdf. file (other file formats will not be accepted) and (3) contain your full name and student ID on the first page of the assignment. Problem 1 (Required, 30 marks) Three bidders are bidding an object. The bidders will take turn submitting their bids. The bidder who submits the highest bid will get the object. If there are more than bidders submitting the highest bid, the object will be randomly assigned to one of these bidders with equal chance. The bidder who get the object has to pay for the object immediately. It is given that Bidder 1 first submits the bid. After knowing the bidder 1’s bid, bidder 2 submits the bid. After knowing the bids submitted by bidders 1 and 2, bidder 3 submits his bid. Bidder 1 values the object at $120 and he has $100. Bidder 2 values the object at $100 and he has $90. Bidder 3 values the object at $95 and he has $120. Assuming the bid amount submitted must be a non-negative integer, find the sequentially rational Nash equilibrium for this bidding games. Provide full justification to your calculation. Problem 2 (Required, 35 marks) We consider the following Battle of sexes games: A couple decides a place for dinner. They can choose one of the followings: Chinese food (C), Western food (W) or Japanese food (J). Now the boy can choose whether to let the girl to choose her preference first (Lady first). If the boy chooses “lady first”, then the girl will choose her preference and let the boy knows her preference. Then the boy then chooses his preference. The payoff matrix is given as follows: Girl (Player 2) Boy (Player 1) (10,6) (−4,−4) (−4,−4) (−4,−4) (7,8) (−4,−4) (−4,−4) (−4,−4) (4,10) If the boy does not want “lady first”, then they will choose their preference simultaneously (without knowing the preference of each other). The corresponding payoff matrix is as follows: Girl (Player 2) Boy (Player 1) (9,5) (−3,−3) (−3,−3) (−3,−3) (7,7) (−4,−4) (−3,−3) (−3,−3) (5,9) (a) Draw the game tree for this games. (b) Hence, find all possible subgame perfect equilibrium for this games. Problem 3 (Required, 35 marks) Three companies are producing a product for the market. Each company will decide the number of products produced. You are given that Given the quantites produced by three companies (denoted by 1, 2, 3 respectively), the market price of the product is = 300 − 1 − 2 − 3. Cost of producing one product is 20 (*Note: So the total cost for producing units of product is 20. (a) Suppose that three firms chooses the quantity produced simultaneously, determine the Nash equilibrium of the games. (b) Suppose that firm 1 is the industry leader and it will first choose the quantity produced 1, other two firms will then choose the quantities produced simultaneously after knowing the decision of the firm 1, determine all possible subgame perfect equilibrium. Provide full justification to your answer. Bonus Problem (Optional, 30 marks) We consider two-person multi-stage games which a game is played 3 times sequentially. You are given that Two players will choose a single strategy (from , , ) simultaneously in each game . The payoff matrix of the games is given by Player 2 Player 1 (10, 10) (4, 12) (0, 13) (12, 4) (, ) (0, 0) (13, 0) (0, 0) (1, 1) where 0 < < 10 is a constant. Apparently, it is good for both players to choose (, ) in the game . However, it is not the Nash equilibrium since the players have incentive to deviate and achieve a higher payoff. In this problem, we would like to investigate the possibility that they may adopt (, ) in some stage in this multi-stage games. We let ∈ [0,1] be the discounting factor. Find all possible values of such that there exists ∗ ∈ [0,1] such that for > ∗, there exists a subgame perfect equilibrium which two players play (, ) in the first two stages.