Question

Two neighboring nations (A and B) are deciding whether to reduce their carbon emissions. Reductions hurt the local economy but benefit the neighboring country. The payoffs and resulting game is given by

		Nation B
		Reduce	Don’t
Nation A	Reduce	32 , 32	10 , 52
	Don’t	52 , 10	30 , 30

1. Formally, what makes a game a prisoner’s dilemma? Is this game is a prisoner’s dilemma?
2. Imagine that Nation B’s (but not Nation A’s) payoffs all triple (i.e., are all multiplied by three). Intuitively, how would your answer to (b) above change? Briefly explain.

Answer 1

A)

The Do not reduce is the dominant strategy for the both players in this game. thus, both players will go with their dominant strategies. thus, here the dominant strategy would establish the nash equilibrium. But the Nash equilibrium is not maximizing the profit here.

Hence, the overall profits of both fall. The both can increase their profit by cooperating instead.

This is a example of prisoner dilemma.

b)

32 ,96	10,156
52,30	30,90

Still do not reduce is the dominant strategy for the both players. Here, thus, prisoner dilemma will continue here. Nash equilibrium does not maximize the profits. Both can raise the level of profit by cooperating.