Game Theory Assignment: Market Design, MGT 822, Problem Set II

This document presents a comprehensive solution to a game theory assignment, specifically focusing on Problem Set II of the MGT 822 course. The assignment explores key concepts such as signaling, education, and market design. The solution analyzes scenarios involving worker abilities, firm beliefs, and the role of degrees as signals. It delves into dominated strategies, conditional beliefs, and the impact of wage structures on worker behavior. Furthermore, the assignment tackles price as a signal of quality in a buyer-seller context, examining payoffs, optimal buyer actions, and the existence of Perfect Bayesian Equilibrium. The solution provides detailed explanations and answers to the questions, including analysis of strategies, conditional probabilities, and equilibrium conditions. The document also includes references to relevant game theory literature.