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Sam and Sarah are thinking about getting married. However if either of them cheats on the other, they would get a payoff of 10, while the other person gets zero. If neither cheat, they stay with each other and get a payoff of 7 each and if both cheat, the relationship falls apart and each get a payoff of 1. ​What is the Nash equilibrium of this game?

User Piotr Wach
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1 Answer

4 votes

Answer:

​Self-interest can sometimes lead to sub-optimal outcomes.

Step-by-step explanation:

In the field of economics, Nash equilibrium can be defined as the system which is stable and it involves the interaction of various participants where no participant can gain by the unilateral change in its strategy if the strategies of the others does not change. In order words, the player can obtain the desired outcome by not deviating or changing from their initial strategy.

In the context, as the outcome of cheating is more than staying together, both Sam and Sarah will tend to cheat and then end up achieving less payoff then what they will get if they stay together.

Therefore, sometimes, self interest can lead to the sub optimal outcomes.

User Niklas Peter
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