Assignment Trigger Strategies
Task
Suppose we have the following situation:
The game is repeated infinitely. Player B says (credibly) he plays grim trigger. A has a time preference of 0.9.
- Is it profitable for player A to cooperate?
- What time preference p would be necessary that A doesn’t want to cooperate anymore?
Solution
a)
Present Value with cooperation: PVC = 8*(1/(1-0.9)) = 80
Present Value with no cooperation: PVN = 11 + 2*(0.9/(1-0.9)) = 29
As PVC > PVN, cooperation is beneficial.
b)
For p < 1/3
