Check Your Understanding

1. Question

   Suppose world leaders Nikita and Margaret are engaged in an arms race and face the decision of whether to build a missile. Answer the following questions using the information in the payoff matrix below, which shows how each set of actions will affect the utility of the players (the numbers represent utils gained or lost).

   

   1. Identify any Nash equilibria that exist in this game, and explain why they do or do not exist.

   2. Which set of actions maximizes the total payoff for Nikita and Margaret?

   3. Why is it unlikely that they will choose the payoff-maximizing set of actions without some communication?

2. Question

   Consider a new version of the game in which Richard and Justin must decide whether to go to the nightclub or the movie theater (More Games). In this version, rather than being disheartened, the two young men bond in jail and want nothing more than to be in the same place after their release. Describe any dominant strategies and Nash equilibria in this game.