Question 4
An item is up for auction. Player 1 values the item at 5 while player 2 values the item at 4. Each player can bid either 0, 1 or 2. If player i bids more than player j then i wins the item and pays his bid, while the loser does not pay. If both players bid the same amount, then a coin is tossed to determine who the winner is, who gets the item and pays his bid while the loser pays nothing. Formulate the game in matrix form and answer the given sub questions.
Which strategies survive Iterated Elimination of Strictly Dominated Strategy?
(0, 0)
(1, 1)
(2, 2)
None