Difficulty: Medium
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, prisoners-dilemma, trading-strategy
Two algorithmic trading firms, Alpha and Beta, are competing in a market. They can choose to cooperate (C) by limiting their trading activity to maintain higher profits for both, or defect (D) by aggressively trading to capture a larger market share, potentially lowering profits for both. This interaction is modeled as an iterated Prisoner's Dilemma. Alpha decides to implement a Tit-for-Tat strategy. Which of the following best describes the Tit-for-Tat strategy and explains why it tends to be a
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