Question

In: Economics

Consider the case of​ Rena's kidney. A good friend of​ yours, Rena​ Elle, needs a kidney....

Consider the case of​ Rena's kidney. A good friend of​ yours, Rena​ Elle, needs a kidney. There are two potential​ volunteers: Cameron and Simone. If one donates and the other does​ not, the one who free rides gets​ 5,000 of​ benefit; the one who donates gets​ 5,000 of benefit but suffers​ 4,000 of​ costs, for a net gain of​ 1,000. If Cameron and Simone both ​donate, surgeons take both their kidneys and choose the healthiest one for Rena.​ Then, both Simone and Cameron get a net benefit of​ 1,000 each.​ Finally, if neither​ donates, Rena​ dies, and nobody gets any payoff at all. Using your​ intuition, what would happen to​ Cameron's and​ Simone's ideal strategies if the benefit to having Rena saved were​ 4,500 instead of​ 5,000?

A. Regardless of​ payoff, Rena needs a kidney to​ live, so Cameron and Simone will not alter their ideal strategies.

B. Since Rena is less valuable to Cameron and​ Simone, they will donate with lower probability.

C. It reduces the likelihood of one player​ donating, so the other player will donate with higher probability.

D. If the benefit to Cameron and Simone decreases by​ 500, both will play their tough strategies and Rena will die.

Solutions

Expert Solution

Rahul Sunny answered 1 year ago
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