Answer Happy

Consider Rosenthal's (1981) Centipede game. Starting at the left, Player A makes the initial move at the first numbered decision node by choosing either STOP (defecting) or GO (cooperating). Choosing STOP causes the game to end at that point and choosing GO leads to the second numbered decision node, where Player B chooses between STOP and GO. Play continues in this fashion, with Players A and B taking turns choosing moves until one of them chooses STOP. If neither player chooses STOP at any of the 10 decision nodes, then the game ends naturally after the final node. The numbers in the terminal nodes at the feet of the Centipede and on its antennae on the far right are the payoffs to the players when the game ends. The illustration of the game is as follows: 10 2 8 10 GO GO GO GO GO GO GO GO 10 0 -1 2 1 4 3 6 5 8 Payoff A Payoff (B 0 3 2 5 4 7 6 9 8 11 Which of the following statements is FALSE? At the 10th decision node, a rational Player B will choose STOP because it is the payoff-maximising option O If Player A chooses GO at the first decision node and Player B chooses STOP at the second, then Player A loses 1 unit of payoff and Player B gains 3 units, relative to the SPE payoffs O A rational Player A should not defect at the first decision node because cooperating gives her a higher payoff in equilibrium The subgame perfect Nash equilibrium of the game can be arrived at by the iterated elimination of dominated strategies S10 STOP S10a STOP SSTOP STOP S100 STO ST09 STOP т GO 00 00 71 GO