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Appendix A Solution for the Equilibrium of the South-North Bayesian Game The equilibrium of the North Korea–South Korea Bayesian game will be solved in appendix A. The most commonly used solution concept for dynamic Bayesian games is Perfect Bayesian Equilibrium (PBE), which I adopt here. First of all, it is easy to see that North Korea has a dominant action on its last move. The sincere type will always choose A’ while the deceitful type will choose ~A’. Now I focus our attention on North Korea’s first move. [1] AA (pooling on A) USK (A) = p USK (RECON) + (1-p) USK (EXPN ) USK (~A) = USK (REJS ) If SK’s best response to NK’s choice of AA is ~A, then NK has the incentive to switch to ~A. Therefore, the PBE does not include SK’s choice of ~A. If SK’s best response to NK’s choice of AA is A, then both types of NK get the best possible outcomes and do not have the incentive to switch. This is true when USK (A) ≥ USK (~A). This inequality condition is satisfied when p ≥ [USK (REJS ) - USK (EXPN )] / [USK (RECON) - USK (EXPN )]. Therefore, a PBE is: {(A/A’, A/~A’), A, p ≥ [USK (REJS ) - USK (EXPN )] / [USK (RECON) - USK (EXPN )]}. [2] A~A (separating with the sincere type choosing A) p’ = 1. SK’s best response is A, and it receives USK (RECON) or 108 Appendix A USK (SQ) depending on NK’s type. A~A is the equilibrium strategy for NK only if SK’s best response to NK’s choice of A is ~A. This is incompatible with p’ = 1. So, there is no PBE under this scenario. [3] ~AA (separating with the sincere type choosing ~A) p’ = 0. In response to SK’s best response, (~A), NK has the incentive to change its current strategy. Therefore, there is no PBE under this scenario. [4] ~A~A (pooling on ~A) SK’s information set is off the equilibrium path. For ~A~A to be part of the equilibrium profile, SK’s best response to NK’s deviation must be ~A (that is, USK (A) ≤ USK (~A)). This is the case when p ≤ [USK (REJS ) USK (EXPN )] / [USK (RECON) - USK (EXPN )]. Therefore, a PBE is: {(~A/A’, ~A/~A’), ~A, p ≤ [USK (REJS ) - USK (EXPN )] / [USK (RECON) - USK (EXPN )]}. The details of the equilibrium solution above lead to the following observations: Observation 1: All PBEs in the North–South-Korea game are pooling equilibria. From [1] and [4] above. Observation 2: SK should pursue A only when p is high. From [1] above. Observation 3: The PBE under the first pooling equilibrium is more efficient for NK than the one under the second. This means that both types of NK will try to convince SK that p is high. From [1] and [4] above. ...

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