The Price Of Two Churro Stands At The Mount

1717 WordsMay 4, 20177 Pages
Above is a matrix that shows the prices of two churro stands at The Mount. Alice needs to decide whether she should charge $4 or $4.50, and Bob is deciding whether he should pay one of those two amounts for a churro. Consider that the row player’s (Alice’s) payoff is the first in the matrix and the column player’s (Bob’s) payoff is the second. Now we need to find out whether the payoffs in each of the cells and see whether it is a Nash equilibrium or not. In this case, it would be the top left cell because per Nash equilibrium no player has the desire to change their strategy after considering their opponent’s choice. Instead of games being done in matrices, extensive form games are done in the form of decision trees which are rather…show more content…
However, if both Alice and Bob rat out each other, they will be incarcerated for a year. The question here is, what should Alice and Bob when they’re interrogated? In game theory, we would call this situation a prisoner’s dilemma, which is a non-zero-sum game in which two players each have two options whose outcome depends on the choice made by the other player at the same time. The prisoner’s dilemma is considered one of the most popular examples of game theory. Here is a matrix of the prisoner’s dilemma below: Bob cooperates Bob defects Alice cooperates Alice gets 6 months Alice gets released Bob gets 6 months Bob gets 5 years Alive defects Alice gets 5 years Alice gets 1 year Bob gets released Bob gets 1 year In the matrix, Alice and Bob are playing a game that is played separately and confidential, and are given the choice the cooperate with the police or defect. The prisoner’s dilemma demands that personal interest is more appealing. No matter what the other person says in the interrogation room, both players are better off confessing rather than saying silent. But the problem here is, if both Alice and Bob confess then they will be faced with a much harsher sentence than if either Alice or Bob cooperate or defect. As Scheve writes, “game theorists have determined that confessing is always the answer for both parties in this case. The reason for this is that each party must assume that the

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