Suppose that we have the following game:
(a) Suppose this game is repeated twice. Describe the subgame
perfect equilibrium.
(b) In the in an infinitely repeated game with a discount rate
for each player, suppose I
specify the following strategy: Play (D,L) in period 1. Play (U,L)
forever after.
If either player deviates, play (D,R) forever. Find the for each
player above
which this strategy constitutes a subgame perfect equilibrium. Make
sure to
show and label your work clearly so that we can follow along with
your process
when grading. (Hint: Because (D,R) is a Nash equilibrium, you need
not check
for pro table deviations at these equivalent histories.)
Player 2 L R U 6,4 0,2 Player 1 D 14,0 4,2