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Adverse selection:-
Firm A (the "acquirer") is considering taking over firm T (the "target"). It does not know firm T's value; it believes that this value, when firm T is controlled by its own management, is at least $0 and at most $100, and assigns equal probability to each of the 101 dollar values in this range.
Firm T will be worth 50% more under firm A's management than it is under its own management. Suppose that firm A bids y to take over firm T, and firm T is worth x (under its own management).
Then if T accepts A's offer, A's payoff is 3/2 x - y and T's payoff is y; if T rejects A's offer, A's payoff is 0 and T's payoff is x.
Model this situation as a Bayesian game in which firm A chooses how much to offer and firm T decides the lowest offer to accept. Find the Nash equilibrium (equilibria?) of this game. Explain why the logic behind the equilibrium is called adverse selection.
Do you believe this model is useful in predicting the starting salary? Justify your answer, using information provided in the computer output.
Is it still true that each player bidding his valuation is a weakly dominant strategy? - Are there other Nash equilibria of this game?
Suppose you are planning entering a market serviced through a monopolist. You currently receive $0 economic profits, while monopolist receives $5.
The time it takes a symphony orchestra to play beethovens ninth symphony has a normal distribution with a mean of 64.3 minutes and a standard deviation of 1.15 minutes. If an orchestra plays it so slowly that 80% of the orchestras play faster than..
Voting by alternating veto - Two people select a policy that affects them both by alternately vetoing policies until only one remains. First person 1 vetoes a policy. Find its subgame perfect equilibria using backward induction
Show that when α = γ = 1, for any value of λ > 0 the game studied above has an (asymmetric) Nash equilibrium in which each type t1 of player 1 bids (1 + λ)t1 and each type t2 of player 2 bids (1 + 1/λ)t2.
Show that the game has an ESS that assigns positive probability only to the demands 2 and 8 and also has an ESS that assigns positive probability only to the demands 4 and 6.
Planning Parenthood, a national organization that assists teenage mothers with pregnancy, estimates that approximately 37% of the women coming into the center had contracted a sexually transmitted infection. They wish to plan a study to obtain a m..
Show that the set of trembling hand perfect equilibria of this extensive game is disjoint from the set of behavioral strategy profiles associated with the trembling hand perfect equilibria of its strategic form.
Compute the probability that exactly five students are left-handed.
Do you think farmers collected more or less hay once this law was established and do you think Iceland's prosperity improved because of good neighbors?
National polls are often conducted by asking the opinions of a few thousand adults nationwide and using them to infer the opinions of all adults in the nation. Explain who is in the sample and who is in the population for such polls. Please use a ..
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