ECON1010/UGEC1511

1st Term, 2012 13

Final Exam
2.
a.
Legislative Council yes, Not Declare
Government no
Nash equilibrium: Not Declare for both. As the Government should believe that the
Legislative Council will choose its dominant strategy (Not Declare) and choose the
best strategy for itself, given this belief, i.e. the Government should choose Not
Declare.
b.
Yes, in this outcome, each player gets payoff 2. But there is another outcome
Declare for both that give both players higher payoffs 3 for Legislative Council and
4 for the Government.
d.
i.

ii.

Government first: no difference from simultaneous move as the

Government foresees that for each choice it might make, the Legislative
Council will respond with Not Declare. Then Not Declare is the better
choice for the Government, yielding 2 instead of 1.
Now the Legislative Council foresees that if it chooses Not Declare, the
Government will respond with Not Declare, whereas if it chooses Declare,
the Government will respond with Declare. Of these two developments,
the Legislative Council prefers the latter where it gets payoff 3 instead of 2.
Therefore the rollback with this order of moves is for both to choose
Declare. The resulting payoffs, 3 for the Legislative Council and 4 for
the Government, are better for both players.