Case Western Reserve University

Department of Economics
ECON 329 - Game Theory
Spring 2015

Homework #6
Lectures 20, 21, 22 & 23
Return in Class on Tuesday April 21st
Name:

Total points ____ out of 20.

1. Infinitely repeated Prisoners Dilemma game (8 points).
Consider the following payoff matrix:
Player 2

Player 1

10, 10

60, -5

-5, 60

50, 50

a) Find the Nash equilibrium assuming that this is a simultaneous, static (one-period) game. (2 points).

b) Suppose the players know that this game will be repeated exactly three times. Can they achieve payoffs that
are better than the static Nash equilibrium? Explain. (2 points).

c) What is the lowest discount rate for which the (B,D) outcome can be sustained in an infinitely repeated game
if the players choose to play trigger strategies? (4 points).

2. Infinitely repeated asymmetric contest (10 points).

Consider a contest between two players for a prize valued at v by both players. Both players make irreversible
effort expenditures e1 0 and e2 0 to increase their probabilities of receiving the prize. Players have different
conflict capabilities (strengths) a1 > 0 and a2 > 0, so that the stronger player 1 (a1 > a2) can expend the same
effort, yet have a higher chance of winning the prize. Specifically, player 1s probability of winning is p1(e1,e2)
= a1e1/(a1e1 + a2e2) and player 2s probability of winning is p1(e1,e2) = a2e2/(a1e1 + a2e2). The expected payoff
for player 1 is E(1) = p1(e1,e2)v - e1 = va1e1/(a1e1 + a2e2) - e1 and the expected payoff for player 2 is E(2) =
p2(e1,e2)v - e2 = va2e2/(a1e1 + a2e2) - e2.
a) Find the Nash equilibrium assuming that this is a simultaneous, static (one-period) game? (2 points).

b) What is the Nash equilibrium payoff? (2 points).

c) What are the lowest discount rates (1 and 2) for players 1 and 2 for which the equilibrium effort of 0 for
both players can be sustained in an infinitely repeated game if the players choose to play trigger strategies?
(Hint: For simplicity, assume that a1 + a2 = 1. Also, note that if e1 = e2 = 0 then the prize is allocated randomly to
each player and both players receive the expected payoffs of E(1) = E(2) = v/2). (4 points).

d) Prove that the stronger player 1 needs a lower discounting than the weaker player 2 to sustain cooperation (2
points).

3. Repeated games (2 points).

When we study repeated games, we usually have a certain game (such as prisoners dilemma) repeated several
times. In the class experiment, we found that behavior in the previous prisoners dilemma game may
significantly influence behavior in the next prisoners dilemma game. Sometimes, this is called a behavioral
spillover.
a) Do you think that similar behavioral spillover would be observed if we had two different (not the same)
games played repeatedly in sequence (2 points). Hint: To answer this question, please read the article
Behavioral Spillovers in Coordination Games which was published in European Economic Review
http://www.sciencedirect.com/science/article/pii/S0014292111000900. If you are off campus, you may not have
a direct access to the journal, so here is the link to an open access version:
https://ideas.repec.org/p/chu/wpaper/11-20.html.