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Dynamic Game Theory Essayby David K. Levine, Department of Economics, UCLA top | syllabus | readings | assignments | contact |
Answer the following question in 2-3 typewritten pages. Try to write this as a short paper: specify the model, the assumptions, state the theorems (you may give references for the proofs), and conclusions. You will be graded for exposition as well as correctness.
Consider the 2x2 prisoner's dilemma game
| 3,3 | 0,4 |
| 4,0 | 1,1 |
Suppose that this is played a fixed number of times with discounting. Suppose moreover that in the final period players instead play a simple coordination game:
| 3,3 | 0,0 |
| 0,0 | 1,1 |
What equilibrium (of the finitely repeated game) maximizes the joint utility of the two players, and which minimizes it? Comment on the economic significance of the fact that a coordination game is played in the final period.