ECO316H1 Lecture Notes - Lecture 5: Game Players
Document Summary
Every consumer has problem but are unable to diagnose. Experts can diagnose but do not have to report correct diagnosis. Depending on diagnosis, consumer may or may not hire expert. Consumer fixes problem themselves or puts up with problem if they don"t hire expert. Want to know what fraction of experts will report honestly and what fraction of consumers will hire experts. Diagnose minor problem as minor or diagnose minor problem as major. Hire expert whatever diagnosis or don"t hire expert who diagnoses major problem. When cost of major repair more than expected cost of self-repair: Equilibrium in which some experts are honest, some dishonest, some consumers accept major diagnoses, some reject. When deciding to report, each person doesn"t know whether anyone else has reported. No symmetric ne n pure nes in which exactly one player calls. As number of people increases, probability that no one else calls increases: in large group, collectively beneficial action less likely to be taken.
