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FIGURE 12.5 Using a Side Payment as Punishment for Noncooperation
Here, Patrick offers to pay Dan 2 as a punishment if Patrick chooses “Play.” Now if Patrick calls “Play,” he will earn a payoff of 10, less than the payoff of 11 he earns if chooses “Pass.” Therefore, in the new Nash equilibrium, both players choose “Pass” and earn a payoff of 11.