Difficulty: Hard
Category: Game Theory & Logic
Practice quant interview questions from top firms including Jane Street, Citadel, Two Sigma, DE Shaw, and other leading quantitative finance companies.
Topics: game-theory, nash-equilibrium, trembling-hand-perfection, strategy
Consider a two-player game where each player can choose between two actions, A and B. The payoff matrix is as follows: | | Player 2: A | Player 2: B | | :---- | :---------- | :---------- | | Player 1: A | 2, 2 | 0, 3 | | Player 1: B | 3, 0 | 1, 1 | Both (A, A) and (B, B) are Nash Equilibria. However, only one is trembling hand perfect. Which of the following statements BEST describes the concept of trembling hand perfect equilibrium and its application to this game?
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