Exercise 2.1. Amy and Bill simultaneously write a bid on a piece of paper. The bid can only be either $2 or $3. A referee then looks at the bids, announces the amount of the lowest bid (without revealing who submitted it) and invites Amy to pass or double her initial bid. If Amy's final bid and Bill's bid are equal then Bill gets the object (and pays his bid), otherwise Amy gets the object (and pays her bid). Represent this situation by means of two alternative extensive frames. Note: (1) when there is a simultaneous move we have a choice of which player we have as moving first: the important thing is that the second player does not know what the first player did; (2) when representing, by means of information sets, what a player is uncertain about we typically assume that a player is smart enough to deduce relevant information, even if that information is not explicitly given to her.

Exercise 2.1. Amy and Bill simultaneously write a bid on a piece of paper. The bid can only be either $2 or $3. A referee then looks at the bids, announces the amount of the lowest bid (without revealing who submitted it) and invites Amy to pass or double her initial bid. If Amy's final bid and Bill's bid are equal then Bill gets the object (and pays his bid), otherwise Amy gets the object (and pays her bid). Represent this situation by means of two alternative extensive frames. Note: (1) when there is a simultaneous move we have a choice of which player we have as moving first: the important thing is that the second player does not know what the first player did; (2) when representing, by means of information sets, what a player is uncertain about we typically assume that a player is smart enough to deduce relevant information, even if that information is not explicitly given to her.

Microeconomics: Principles & Policy

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter13: Between Competition And Monopoly

Section: Chapter Questions

Problem 10DQ

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