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Consider this natural extension of stripped down poker game we examined in class. Initially each player puts a dollar in the pot. Then each player is dealt; each player’s card is equally likely to be high or low, independently of the other player’s card. Each player sees only her own card. Player 1 may see or raise. If she sees, then the players compare their cards. The one with the higher card wins the pot. If the cards are the same, then each player takes back the dollar dollar she had put in the pot. If player 1 raises, then she adds $2 to the pot, and player 2 may pass or meet. If player 2 passes, then player 1 takes the money in the pot. If player meets, then she adds $2 to the pot and the players compare cards, the one with the higher card winning the pot; if the cards are the same, then each player takes back the $3 she had put in the pot. Model this game as an extensive game and find the Perfect BNE in mixed strategy.

Business Economics, Economics

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