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Economics

Mitt Romney and Newt Gingrich are two of the most likely candidates for the Republican nomination for President. One of the key strategic decisions they will make is how negative their ads should be. Assume the payout matrix (in terms of votes gained or lost is as follows.

Newt Gingrich
Run Very Negative Ad Run Negative Ad Run Positive Ad

Mitt Romney
Run Very Negative Ad -500, -500 -500, -800 -500, -600
Run Negative Ad -800, -500 -300, -300 -300, -400
Run Positive Ad -600, -500 -400, -300 500, 500

a. What are the Nash equilibria here? There may be more than one. (Note that for this part of the problem, consider only the candidate's strategies on their own vote totals)

b. Now of course, candidates care not just about their own vote totals, but also about those of their opponents. When this is taken into account, there is only one Nash equilibrium. What is it and why?

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Macroeconomics, Economics

Category:- Macroeconomics
Reference No.:- M9694414

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