Question

Economic agents? (for example, consumers or? firms) often do things that at first glance seem to be inconsistent with their? self-interest. People tip at restaurants when they are on vacation even if they have no intention to return to the same place.?Firms, sometimes, install costly pollution abatement equipment voluntarily.

These deviations from Nash predictions can most likely be explained if? __________.

A.

an? individual's benefits are defined not only by her own payoffs but also by the payoffs of others.

B.

people value the payoffs to other individuals more than their own payoffs.

C.

there is some financial incentive to do so.

D.

players have reputational? concerns, and they value trustworthy behavior.

2. Bob and Mabel are neighbors and goat owners. Adjacent to their properties is a? city-owned field that is used by local apartment dwellers as a park. Bob and Mabel can make more money raising goats if they use the field as pasturage.?Unfortunately, if the field is used as a pasture for their? goats, it will ruin the park. If either Bob or Mabel feels bad about ruining the park that they decide not to graze their goats? there, then the other person can further increase their profits since there would be less competition for pasturage. If neither Bob and Mabel use the park as pasturage for their? goats, then the park will be saved and the town will grant both Bob and Mabel a substantial tax rebate.??

The payoffs are as? follows:

?		Mabel
		Graze Goats	?Don't Graze Goats
Bob	Graze Goats	Box 1 Bob earns profits of? $50,000 Mabel earns profits of? $50,000	Box 2 Bob earns profits of? $80,000 Mabel earns profits of? $10,000
	?Don't Graze Goats	Box 3 Bob earns profits of? $10,000 Mabel earns profits of? $80,000	Box 4 Bob earns profits of? $60,000 Mabel earns profits of? $60,000

?Bob's dominant strategy is to

?

Graze Goats

Don't Graze Goats

?, and? Mabel's dominant strategy is to

?

Don't Graze Goats

Graze Goats

.

The dominant strategy equilibrium leads to an outcome that

?

is

is not

best for both? players, which creates a

?

tragedy of the commons

zero-sum game

prisoners' dilemma

.

Identify the Nash? equilibrium(s):

A.

Box 1.

B.

Box 2.

C.

Box 3.

D.

Box 4.

E.

Boxes 2 and 3.

F.

There is no Nash equilibrium.

Answer 1

1. The answer will be option D as individual invest foir maintaining quality and commanding respect in the market through these interventions.

2. The NASH Equilibrium for

tragedy of the commons

zero-sum game

prisoners' dilemma

can be illustrated with the outcomes in box 2 and box 3.

As Bob's strategy was to gaze goats and Mabel's strategy was to not gaze goats hence the outcome in the prisoners dilema states that the one gets the benefit and the other gets the prison.

Hence the answer will be option B box B1.