There are two players, A and B. Each player i ∈ {A, B} can be of one of two types ti ∈ {0, 1}. The probability that a player is of type 1 equals π. When A and B meet, each can decide to fight or cave. If both players fight, then player i gets payoff
ti - c, j ?= i ti + tj
where c > 0. If player i fights, but player j does not, then player i gets payoff 1, while player j gets payoff 0. If both players do not fight, each gets payoff 1/2.
- Draw the Bayesian normal form representation of this game.
- Recall that a strategy in a static Bayesian game is a function that specifies an action for each type of a player. Write down all the possible strategies for player i.
- Assume that A plays fight if tA = 1 and cave otherwise. IfBisoftype1,whatshouldshedo? Ifsheisoftype 0, what should she do?
- Is there a Bayesian Nash equilibrium in which each player fights if and only if she is of type 1? If so, what is the equilibrium probability of a fight?
- Assume that A never fights. If B is of type 1, what should she do? If she is of type 0, what should she do?
- Is there a Bayesian Nash equilibrium in which no player ever fights?