Question

Exercise 3- Unemployment benefits. Consider the following simultaneous-move game between the government (row player), which decides whether to offer unemployment benefits, and an unemployed worker (column player), who chooses whether to search for a job. As you interpret from the payoff matrix below, the unemployed worker only finds it optimal to search for a job when he receives no unemployment benefit; while the government only finds it optimal to help the worker when he searches for a job. Worker Search Don 't search Government Benefit3,2 No benefit1,1 1,3 0,0 Represent this game in its extensive form (game tree), where the government acts first and the worker responds without observing whether the government offered unemployment benefits. Does player 1 has strictly dominant strategies? What about player 2? Find which strategy profile (or profiles) survive the application of IDSDS. a) b) c)

IDSDS= Iterative Deletion of Strictly Dominated Strategies

Answer 1

thus all strategy profiles survive IESDS