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Midterm

ECON 100B Study Guide - Midterm Guide: Grim Trigger, Subgame Perfect Equilibrium, Root Mean SquareExam


Department
Economics
Course Code
ECON 100B
Professor
All
Study Guide
Midterm

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University of California, Irvine
Econ 100B Intermediate Economics
Mid-Term Test
Instructor: Jean-Paul Carvalho
Thurs 5 February 2015
Please print legibly
Name:
Student ID number:
Candidates should answer all questions in the space provided. You may con-
tinue on the back of the sheet if you need additional space. This is a closed-
book, closed-notes exam, with NO calculators.
The paper consists of 4 questions. The total number of points for the paper is 40.
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Q1. Consider the following game. A spy (row player) is trying to get away from the
villain (column player) by skiing down one of three routes. The villain can choose to
explode a bomb (which is costly) and cause an avalanche or not explode a bomb. Payoffs
are given by the following matrix:
Don’t Explode Explode
1 12,0 0,6
2 7,1 1,5
3 9,3 6,0
a. Are there any routes that the spy should never to choose? (2 marks)
b. Let qbe the probability with which the villain chooses ‘Don’t Explode’. What should
the spy do if q > 2
3? What about if q < 2
3? (3 marks)
c. Derive the mixed strategy Nash equilibrium of this game. Prove that it is an equilib-
rium. (5 marks)
(Remember to show all working)
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