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FIGURE 12.4 A Side Payment Can Alter the Nash Equilibrium
In the original sequential “Play or Pass” game (Figure 12.3), Dan chose “Play” and received a payoff of 1. If Dan instead offers Patrick a side payment of 2 if Patrick will call “Pass” when it is his turn, the equilibrium changes. Now when Dan passes to Patrick, Patrick will also call “Pass.” In the new Nash equilibrium, Dan and Patrick earn payoffs of 9 and 13, respectively, more than they would have earned without the side payment.