Question

Consider the game in the figure at right about funding and construction of a dam to protect a​ 1,000-person town. Contributions to the dam​ fund, once​ made, cannot be​ recovered, and all citizens must contribute​ $1,000 to the dam in order for it to be built. The​ dam, if​ built, is worth​ $70,000 to each citizen. If each player chose a maximin​ strategy, the outcome would be A. ​$0, minus​$1,000. B. ​$0, $0. C. minus​$1,000, ​$0. D. ​$69,000, $69,000. E. a mixed strategy equilibrium.

	Contribute to Dam	Don't Contribute to Dam
Contribute to Dam	69K, 69K	-1,000,$0
Don't contibute to Dam	0, -$,1000	$0,$0

Answer 1

For player 1, the minimum profit is zero when player 2 decides to contribute to dam. When player 2 decides not to contribute, the minimum profit for player 1 is - 1000. Maximum profit from these two values is 0. Therefore maximin strategy for player 1 will be we not to contribute to the dam.

Using the same analogy, the maximin strategy for player 2 is a not to contribute to the dam (0 vs -1000). Therefore the Nash equilibrium under maximin strategy will be (0, 0). Select option B.