Econ Micro (book Only)
6th Edition
ISBN: 9781337408066
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 10, Problem 10P
To determine
The equilibrium strategy combination in prisoners’ dilemma
Concept Introduction:
Prisoners’ Dilemma- It is a classic duopoly paradox in decision analysis under games theory. It shows how rational individuals or individual firms act in self-interest and pursue a strategy that is not mutually beneficial or ideal.
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Q13 George and Jerry are competitors in a local market. Each is trying to decide if it is
better to advertise on TV, on radio, or not at all. If they both advertise on TV, each will
earn a profit of €3,000. If they both advertise on radio, each will earn a profit of €5,000.
If neither advertises at all, each will earn a profit of €10,000. If one advertises on TV
and the other advertises on radio, then the one advertising on TV will earn €4,000 and
the other will earn €2,000. If one advertises on TV and the other does not advertise,
then the one advertising on TV will earn €8,000 and the other will earn €5,000. If one
advertises on radio and the other does not advertise, then the one advertising on radio
will earn €9,000 and the other will earn €6,000. If both follow their dominant strategy,
then George will:
(a) advertise on TV and earn €3,000;
(b) advertise on radio and earn €5,000;
(c) advertise on TV and earn €8,000;
(d) not advertise and earn €10,000;
A large group of players each guesses a number between 0 and 300. The winner is
the person whose number is closest to three-fifth of the average guess. What is the Nash
equilibrium? Will it be observed? What do you expect for the outcome of this game with next
year's 203 class? (Considering that they have similar sophistication to your class but they
have not covered game theory yet.)
Consider the following game. Firm 1 can implement one of two actions, A
or B. Firm 2 observes the action chosen by Firm 1 and then decides
whether to fight it or not.
(-10, 20)
F2
Fight
A
Don't fight
-(30, 10)
Firm 1
(-10, 0)
Fight
B
Don't fight
-(20, 15)
(a) Consider the following strategy profile: Firm 1 chooses A; Firm 2
chooses fight if A, and fight if B.
• this strategy profile is [Select]
(b) Consider the following strategy profile: Firm 1 chooses B; Firm 2
chooses fight if A, and don't fight if B.
• this strategy profile is [Select]
O
(c) Consider the following strategy profile: Firm 1 chooses B; Firm 2
chooses don't fight if A and don't fight if B.
• this strategy profile is [Select]
00
F2
()
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