Chapter 13

  1. 1.1 The payoff matrix in this prisoners’ dilemma game is

    If Duncan stays silent, Larry gets 0 if he squeals and 1[&|minus|1&] (a year in jail) if he stays silent. If Duncan confesses, Larry gets 2[&|minus|2&] if he squeals and 5[&|minus|5&] if he does not. Thus, Larry is better off squealing in either case, so squealing is his dominant strategy. By the same reasoning, squealing is also Duncan’s dominant strategy. As a result, the Nash equilibrium is for both to confess.

  2. 1.3 No strategies are dominant, so we use the best-response approach to determine the pure-strategy Nash equilibria. First, identify each firm’s best responses given ...

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