Consider the game below with a worker (W) and a firm (F). The worker initially c
ID: 1151077 • Letter: C
Question
Consider the game below with a worker (W) and a firm (F). The worker initially can choose to acquire skills or not acquire skills. If the worker does acquire skills, the firm then gets to decide whether to compensate the worker or not. The extensive form of the game and the payoffs are below. Which of the following is true? (10.10) (-5.20) (00) O There is a unique pure strategy Nash equilibrium. O There are two pure strategy Nash equilibria. A pure strategy Nash equilibrium does not exist. O Both players have a strictly dominant strategy. O None of the above.Explanation / Answer
Writing the game in the matrix form we have
Finding the nash equilibrium
Given the worker chooses to acquire skills , the firm will compensate or not compensate . the best for the firm will be to not compensate ie 20 is more than 10. If the worker chooses not to acquire there will be no action of the firm as game ends.
Next if the firm chooses to compensate , the worker will acquire skills and if the compensation is not then the worker will not acquire skills
so the nash equilibrium will be (0,0) ie not acquiring skills and so the not compensation.
so nswer is a pure strategy nash equilibrium . Hence Option A
compensate not compensate acquire skills (10,10) (-5,20) not acquire skills (0,0) (0,0)