Question

Suppose Russell and Aaliyah are playing a game that requires both to simultaneously choose an action: Up or Down. The payoff matrix that follows shows the earnings of each person as a function of both of their choices. For example, the upper-right cell shows that if Russell chooses Up and Aaliyah chooses Down, Russell will receive a payoff of 6 and Aallyah will recelve a payoff of 3 .

Aaliyah
Up Down
Russell Up 4, 4 6, 3
Down 5, 4 5, 3
In this game, the only dominant strategy is for ____ to choose _____.
The outcome reflecting the unique Nash equilibrium in this game is as follows: Russell chooses ____ and Aalyah chooses ____.

Answer 1

In the scenario involving Mary and Raj, game theory's Prisoner's Dilemma suggests that without trust or enforcement, both may choose to not cooperate and earn less overall. If cooperation could be ensured, both would benefit from higher earnings by lowering output.

Step-by-step explanation:

In the scenario described for Mary and Raj, game theory concepts such as the Prisoner's Dilemma apply. If Raj is certain that Mary will cooperate by lowering output, his best choice, from a purely self-interested perspective, is to cheat by not lowering his output, thereby capturing the entire market and earning $200. If Mary suspects Raj will cheat, her best choice would be to not cooperate and maintain her output to earn $100, since lowering her output in this case would earn her nothing. The Prisoner's Dilemma result occurs when both players decide to act in their own self-interest, which leads to both working independently and earning $100 each; this outcome isn't the most efficient for the group.

If Mary and Raj could ensure mutual cooperation, the preferred choice would be for both to cooperate and lower their output, earning them $150 each. This outcome would be the most beneficial for both parties collectively but requires a level of trust or enforcement mechanism to mitigate the incentive to cheat.