Consider the following sequential game.Wally first chooses L or H.Having observed Wally's choice, Elizabeth chooses between A and F.The payoffs are as follows.If Wally chose L and Elizabeth chose A, the payoffs are 30 to Wally and 20 to Elizabeth.If Wally chose L and Elizabeth F, the payoffs are 40 to Wally and 10 and to Elizabeth.If Wally decides to opt for H and Elizabeth A, the payoffs are 10 and 2 to Wally and Elizabeth, respectively.Finally, if Wally opts for H and Elizabeth F, the payoffs are 35 to Wally and 5 to Elizabeth.What is the outcome in the subgame perfect equilibrium of this game?
A)(L, F)
B)(H, A)
C)(H, F) and (L, F)
D)(L, A) and (H, F)
E)(H, F)

Question

Quizplus · Accepted Answer

In a subgame perfect equilibrium, each player's strategy is optimal given the strategies of the other players at every point in the game. After Wally chooses L, Elizabeth will choose F because 10 > 20 for her. After Wally chooses H, Elizabeth will also choose F because 5 > 2 for her. Knowing Elizabeth's responses, Wally will choose H because 35 (his payoff for H,F) > 40 (his payoff for L,F). Thus, the subgame perfect equilibrium is (H, F).

Consider the Following Sequential Game