Question

In: Economics

Please explain the priosoners dilema as depletion of medical insurance fund , mixed strategy equilibrium as...

Please explain the priosoners dilema as depletion of medical insurance fund , mixed strategy equilibrium as tax evasion and commitment problem as central bank game respectively. What do they mean by definition and what would be the examples of each

they are part of a game theory

Solutions

Expert Solution

Prisoners dilemma

In economcis it is a paradoxical situation in connection with decisi on making. Under such situation two individuals or groups acting according to their own self interest, and atlast fail to produce the expected outcome. It is a game theory under which two or more individuals or groups express their unwillingness to cooperate with each others ideas or decisions at any cost.  

Prisoners dilema is considered as a useful tool for strategic decision making. It actually provides a framework for understanding how to establish a balance between conflict and cooperation.  

The most effective step to overcome Prisoners dilema is the tit for tat strategy. According to this method, one has to closely observe what is the other party's next move. If he shows willingness to cooperate, we will also do the same, on the other hand, if he does not want to cooperate, then no more cooperation.

Health insurance is, in large part, a prisoners dilemma. Medicines are expensive and demand is high. As long as we live in a country where everyone has health insurance, we also want one. It is not our need, it is our want.  

mixed strategy equilibrium

An equilibrium is a sustainable combination of strategies. It means that no player has the right to change unilaterally to a different strategy. A players strategy determines the action the player will take at any stage ofthe game.  

tax evasion and commitment problem

In the tax evasion and commitment probleme there arises a relationship with the tax payer and the inspector. If the tax amount is huge and it is a burden for the tax payer, certain tax evasion methods, which are legally accepted can be adopted. The tax evasion should be genuine, and there takes place a prisoners dilema game theory. Forgiveness in certains cases also has to be adopted under certain genuine situations.  

central bank game

In a BBC news report, there was an interesting bit of game theory, which explained global central banks are trapped in a "prisoners dilema" , that is, they are unable to raise interest rates, in case they derail economic recovery.  

part of a game theory


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