How two players simultaneously guess a number

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Reference no: EM1361602

Two players simultaneously guess a number, with player 1's pick restricted to be between 300 and 500 (including the endpoints), and player 2's pick restricted to be between 100 and 900 (including the endpoints). Each player has a "target," and the closer is her guess to her target, the higher is her payoff. Player 1's target is 0.9 times player 2's guess, and player 2's target is 1.3 times player 1's guess. All this is known to both players.

(a) Suppose both players behave according to the level-k thinking model discussed in class. Derive the guesses of a level-0, level-1, level-2, and level-3 player 1. Do the same for player 2.

(b) What is the Nash equilibrium of this game? (Note this game is dominance-solvable)

Reference no: EM1361602

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