Consider the stage game below and suppose it is repeated inf

Consider the stage game below, and suppose it is repeated infinitely many times

To sustain a SPNE in which players play (B,E) in every period by means of a trigger strategy, the discount rate must be larger than or equal to

1/7.

2/3

1/3

(B,E) cannot be part of a SPNE.

3/7.

please explain

	a.	1/7.
	b.	2/3
	c.	1/3
	d.	(B,E) cannot be part of a SPNE.
	e.	3/7.

Player 2 D E F A 1,1,11,1 PlayerI B1,8 7,51,1 C5,78,31,1

Solution

Answer: D

Explanation:

Here let suppose that,

Player 1 play strategy \'A\' then Player 2 is indifferent between playing any strategy (D,E,F).

Now if, Player 1 play \'B\' then for player 2 playing strategy \'D\' is profitable. Hence equlibrium strategy will be (B,D)

Now if, Player 1 play \'C\" then for Player 2 playing strategy \'D\' is profitable. Hence equilibrium strategy will be (C,D)

So we can see that foe play 2, it is always a best strategy to play \'D\'. Given this Play 1 profitable strategy will be to play \'C\'.

Hence SPNE will be (C, D) and not (B, E).

So the answer will be option (D).