1. Consider the following 2x2 game: Player 2 Left Right 54, 15 Down 21,53 35,78

Question

1. Consider the following 2x2 game: Player 2 Left Right 54, 15 Down 21,53 35,78 Player 1 Up 23, 12 If players have the optional it signal their action before taking it (they are able to say either Up or Down if Player 1, for example), then what are all the strategies that each player has? Suppose that you are hiring a person to manage a project whose success is probabilistic. If the workers you want to hire work hard the project succeeds 60 percent of the time. If they don't work hard it will still succeed 20 percent of the time. If the project succeeds it will eam 500,000. Suppose that to work at all they demand 20,000 dollars and for high effort 50,000 dollars. What is an optimal contract to ensure that they work hard? 2.

Explanation / Answer

First question is answered below

1.

When 1 chooses Up, 2 will choose Right

When 1 chooses Down, 2 will choose Right

So, 2 has dominant strategy to chose Right

Similarly,

Player 1 has dominant strategy to choose Up

Thus, Nash: (Up,Right) or (54, 15)

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