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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

The prisoners’ dilemma is a two-person game illustrating that

a. the cooperative outcome could be worse for both people than the Nash equilibrium.

b. even if the cooperative outcome is better than the Nash equilibrium for one person, it might be worse for the other.

c. even if cooperation is better than the Nash equilibrium, each person might have an incentive not to cooperate.

d. rational, self-interested individuals will naturally avoid the Nash equilibrium because it is worse for both of them.

To determine
Relevance of Prisoner’s dilemma.

Explanation

Option (c):

The prisoners' dilemma is a two-person game illustrating that even if cooperation is better than the Nash equilibrium, each person might have an incentive not to cooperate. In Nash equilibrium, each person chooses their best strategy from the given strategies that the others have chosen. Thus, option ‘c’ is correct.

Option (a):

In the prisoner dilemma, there is a great payoff if one person is cheating another person...

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