(a)
Definition and assumption leads to prisoner’s dilemma.
(a)
Explanation of Solution
The prisoner’s dilemma is the game between two persons that illustrate why cooperative behaviour is difficult to maintain. In this case, both persons will take a strategy to maintain their interests. This is based on some assumptions that are listed as follows:
- 1) Each player act to fulfil their interest.
- 2) No communication between the prisoners’.
- 3) No binding agreements.
(b)
The possibility of escaping the prisoner’s dilemma.
(b)
Explanation of Solution
A binding agreement or trusting each other are the main method to escape from the prisoner’s dilemma. If one firm is ready to take his strategy without worsening the other, this will create a possibility to escape them from the dilemma.
(c)
The opinion of standard model and experiment economy to Answer b.
(c)
Explanation of Solution
According to the standard model, the firms will not trust the other one and they do only for their interest and better off. Thus, there is a possibility of cheating when the game is played by two firms. Experimental economists argue this and they say that the firms will take their decisions only after considering the effects on other firms too.
Want to see more full solutions like this?
Chapter 20 Solutions
Microeconomics
- Using game theory what are some examples in where Nash equilibrium is incorporated?arrow_forwardGive an example of a strategic game in which at the Nash equilibrium players play lotteries. Define the game and explain the logic that leads to the equilibrium choices.arrow_forwardSuppose Justine and Sarah are playing the ultimatum game. Justine is the proposer, has $140 to allocate, and Sarah can accept or reject the offer. Based on repeated experiments of the ultimatum game, what combination of payouts to Justine and Sarah is most likely to occur?.arrow_forward
- In dynamic game theory, a situation where a player is using non-credible threat is an examples of subgame perfect Nash equilibrium, explain why or why not?arrow_forwardIdentify a real-world situation in which you see game theory/strategic behavior in action. Explain the game: Who are the players ? What are the strategies they have at their disposal? How are payoffs determined? What, if any, is the Nash equilibrium? Note, this article from Up Journey might help you come up with an example: https://upjourney.com/game-theory-examples-in-real-lifearrow_forwardConsider a game where each player picks a number from 0 to 60. The guess that is closest to half of the average of the chosen numbers wins a prize. If several people are equally close, then they share the prize. The game theory implies that (A) all players have dominant strategies to choose 0 (B) all players have dominant strategies to choose 30 (C) there is a Nash equilibrium where all players pick 0 (D) there is a Nash equilibrium where all players pick positive numbers Behavioral data in such games suggests that (A) most subjects choose 0; (B) most subjects choose 30;(C) common answers include 30, 15, 7.5, and 0; (D) most subjects use randomization.arrow_forward
- What is the difference between macroeconomics and microeconomics? And where would game theory fall within these?arrow_forwardIn game theory, what is a subgame? What is a subgame-perfect Nash equilibrium? If possible, could you please provide an example? Thank you!arrow_forwardThis question is about the game theory in economics. Please can anyone answer the following question step by step elaborately?arrow_forward
- Try to comment the following statements with reference to the insight from the computer simulation of game theory. "As the proportion of businessmen cheating is too high in this country, cheating is unavoidable to survive and to attain sustainability."arrow_forwardThe chicken game has often been used to model crises. Recall that in this game, the two players drive straight at each other. They can choose to swerve or keep going straight. If one swerves, and the other goes straight, assume that the one that swerves gets -10 utility and the one that goes straight gets 10 utility, since the one that swerves is deemed the loser. If both swerve, both get 0 utility. If both go straight, they crash and get -50 utility. Assume both players have a discount rate of 0.9 Draw the stage game of date night List all pure strategy Nash equilibria of the single stage game Consider an infinite horizon version of Chicken. Can you get an SPNE in which the both players swerve using a grim trigger type strategy? Consider the following strategies: both players swerve, as long as neither ever went straight. If one player ever plays straight, in all subsequent rounds the player that swerved goes straight and the player that went straight swerves. Can you think…arrow_forwardPlease answer this game theory questionarrow_forward