QUESTION 2 Player I A 66 27 22 Player I B 74 22 11 C 22 11 1

QUESTION 2 Player I A 6,6 2,7 2,-2 Player I B 7,-4 -2,-2 1,-1 C 2,-2 1,1 1,1 Consider a repeated game in which the stage game above is repeated twice and there is no discounting. The maximum payoff a player can achieve in a SPNE of the repeated game is (Please, enter a numerical value like: -1, 0, 0.5, 3.5, 4, etc)

Solution

Answer : 7.

In the given payoff matrix box, there are two SPNE. Firstly, if player is the first mover then he select the strategy B because of higher payoff 7 but player II select the strategy E with higher payoff 7. Therefore, NE is ( -2,7 ) where A is the strategy for player I and E is the strategy for player II.

Secondly, if player II is the first mover then he will select the strategy E with higher payoff 7 but player II select the strategy B because of higher payoff 7. Therefore, the NE becomes ( 7, -4 ) where B is the strategy for player I and D is the strategy for player II.

Therefore, a player can achieve the maximum payoff 7 in SPNE.