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Suppose that each person has playing cards numbered 8 and 6. Playing the 6 "pulls" $6 (from the experimenter's reserve) into one's own earnings, and playing the 8 "pushes" $8 (from the experimenter's reserve) to the other person's earnings. If they both pull the $6, earnings are $6 each. Both would be better off if they played 8, yielding $8 for each. Pulling $6, however, is better from a selfish perspective, regardless of what the other person does. The best outcome from a selfish perspective is to "pull" $6 when the other person "pushes" 8, which yields a total of $14. A Nash equilibrium survives an "announcement test" in that neither would wish they had played a different card given the card played by the other. In this case, the Nash equilibrium is for each to play 6.

 

Draw the payoff table for this Prisoner's dilemma based on "pulling" 6 and "pushing 8.

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M91371127

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