(8 points) Imagine that two players play the following game in each stage repeatedly and forever. Also assume that they

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8 Points Imagine That Two Players Play The Following Game In Each Stage Repeatedly And Forever Also Assume That They 1 (54.76 KiB) Viewed 68 times

(8 points) Imagine that two players play the following game in each stage repeatedly and forever. Also assume that they share the same discount factor 8 of future payoffs. Player 2 X Y A 5,0 1, 2 B 3,4 0,7 Player 1 (a) (1 point) Find every pure-strategy Nash equilibrium of the stage game above. (b) (1 point) For each pure-strategy Nash equilibrium you find in part (a), is it Pareto efficient? If not, find an outcome of the above game that is more Pareto efficient than the Nash equilibrium. (e) (2 points) Define a Grim Trigger strategy that supports the Pareto efficient outcome you find in part (b) when the two players play this game repeatedly and forever. (d) (4 points) If both players adopt the Grim Trigger strategy you define in part (c), for what range of 8 would we expect the two players to achieve the Pareto efficient outcome in every stage?