Question

Consider two lobster fishermen from Maine. Each has to decide, independently, how many traps to set. Each can set either 5 or 15 traps. The more traps one fisherman sets, the higher the cost of fishing for the other. Their earnings for each combination are in the table below. The first number in parentheses is the payoff for Fisherman A.

		Fisherman B
		15 Traps	5 Traps
Fisherman A	15 Traps	($6, $6)	($14, $3)
	5 Traps	($3, $14)	($12, $12)

- What choice does each Fisherman make in the Nash equilibrium?

- Considering both Fisherman together, what is the efficient set of choices?

- What does a dominant strategy mean in game theory, and do the Fishermen in this game have a dominant strategy?

Answer 1

a) A Nash equilibrium is a point from where none of the player will deviate unilaterally or they will be facing a loss. Here, the Nash equilibrium is at 15 traps both. the payoff for both the player is $6 each.

b) The efficient scale of choice considering both the fisherman is 5 traps each, that will ensure they earn a higher payoff that is $12.

c) A dominant strategy is a position where the layer will stay no matter what the other player choose. here the dominant for both the player is 15 traps. It will ensure a better payoff for them.