Question

Suppose Lorenzo and Neha are playing a game in which both must simultaneously choose the action Left or Right. The payoff matrix that follows shows the payoff each person will earn as a function of both of their choices. For example, the lower-right cell shows that if Lorenzo chooses Right and Neha chooses Right, Lorenzo will receive a payoff of 6 and Neha will receive a payoff of

Neha

Left Right

Lorenzo Left 8, 4 4, 5

Right 5, 4 6, 5


The only dominant strategy in this game is for (Neha/Lorenzo) to choose (Right/Left)t.


The outcome reflecting the unique Nash equilibrium in this game is as follows:


Lorenzo chooses (Right/Left) and Neha chooses (Right/Left) .

Answer 1

Answer: a) Neha picks Right as Dominant strategy.

b) Both Lorenzo and Neha pick Right for Nash Equilibrium.

Step-by-step explanation:

The Dominant strategy of a game for a player is to choose an action that will bring them the highest benefit regardless of the choice of their opponent.

For NEHA then, it is best that they choose to go RIGHT. Should they Neha go right, they are guaranteed a payoff of 5 regardless of if Lorenzo picks Left or Right.

The unique Nash Equilibrium for a game is the point where the choices of both players benefit them the most. At this point, both players have little incentive to leave because they are at their maximum level of benefit.

In the above scenario, Neha will always pick Right. If Lorenzo wants to get their maximum benefit they will pick Right as well to get a Payoff of 6 as opposed to getting a Payoff of 4 if they don't.

The outcome reflecting the unique Nash equilibrium in this game is as follows:

Lorenzo chooses Right and Neha chooses Right.