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In: Economics

Create a prisoner's dilema table. Then use a prisoner’s dilemma to show how hoarding behavior can...

  1. Create a prisoner's dilema table. Then use a prisoner’s dilemma to show how hoarding behavior can arise as an equilibrium when an emergency is expected. Explain why you chose the payoffs the way you did.

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Expert Solution

Prisoner 1   has to build a belief about what choice Prisoner 2 is going to make, in order to choose the best strategy. If Prisoner 2 confesses, he will get either -8 or 0, and if he lies   he will get either -10 or -1.

It can be easily seen that Prisoner 2 will choose to confess, since he will be better off. Therefore, Prisoner 1 must choose the best strategy given that Prisoner 2 will choose to confess.

Prisoner 1 can either confess (Prisoner 1 confess, which pays -8) or lie (Prisoner 1 lie, which pays -10).

The rational thing to do for Prisoner 1 is to confess. Proceeding inversely, we analyze the beliefs of Prisoner 2 about Prisoner 1’s strategies, which gets us to the same point: the rational thing to do for Prisoner 2 is to confess. Therefore, [Prisoner 1confess, Prisoner 2 confess] is the Nash equilibrium in this game (UNDERLINED -8-8).

Rahul Sunny answered 2 years ago
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