Question

			B
		small		large
	small	X,Y		132,166
A
	large	162,135		141,139

6. Consider Figure 2. Let X = 150 and Y = 140. In this game, what is the Nash equilibrium?

(a.) Both choose small

(b.) Both choose large

(c.) A chooses small and B chooses large

(d.) A chooses large and B chooses small

Answer 1

With the given values of X and Y, there is a dominant strategy for both the players in selecting large. The payoff received from selecting large by both the players is greater than the payoff from selecting small. For player A this gives a choice between 150 and 162 when player B select small and 132 and 141 when she select large. Clearly, large becomes the dominant strategy for player A as well as for player B

Nash equilibrium is therefore selecting large by both players. Option B is correct.