Question

Question 2(10 marks): The table below represents the pay-offs in a one-shot, simultaneous move game with com- plete information. (Player As pay-offs are given first) Top Player A Middle Bottom Left 7,17 10,5 4,4 Player B Middle 21,21 14,4 7,3 Right 14,11 4,3 10,25 • Find the Nash equilibria in pure strategies for the game whose py-offs are represented in the table above. • What is the likely focal equilibrium and why?

Answer 1

1)

Player 1: the BOTTOM strategy has been dominated by the strategy TOP. Hence, BOTTOM strategy must be deleted.

Now moving to the player 2, the RIGHT strategy has been dominated by the strategy MIDDLE. Thus RIGHT must be deleted.

Now there are two Nash equilibrium:

( Middle: left) , (Too: Middle)

2)

Focal point is established where cooperation leads to maximum outcomes

Focal equilibrium is : ( Top: Middle)