Question

#NAME? Please do not mark in the red cell. Lori e bonus or not giving him one. All else the sam, Max prefers ot loaf Max a. (3 points) create each player's best response correspondence Work Bonus 1,2 1,3 b. (3 points) Plot the best response correspondence. No Bonus 3,-1 0, 0 c. (2 points) What is the Nash equilibrium strategy? d. (2 points) What is the Nash equilibrium payoff?

Answer 1

1. Best Response correspondence

Lori

BRLori( Work) = No Bonus

BRLori(Loaf) = No Bonus

Max

BRMax (Bonus) = Loaf

BRMax(No Bonus) = Loaf

2. Let Lori chooses no bonus with probability p and bonus with probability (1-p) and Max chooses loaf with probability q and and work with probability (1-q).

1 1 9

3. Nash equilibrium is the mutual best response. Since both Lori and Max have No Bonus and Loaf as the dominant strategy respectively. Therefore the Nash equilibrium is {No Bonus, Loaf}
4. Nash equilibrium pay-off are (0,0)

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