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During the pandemic, stockpiling behavior have been criticized in the newspapers and described as irrational. From a game theory perspective, stockpiling of toilet paper can be modeled as a strategic game. Let's assume that we have two players who can choose between option 1: running to buy toilet paper (stockpiling behavior); and option 2: waiting to buy toilet paper. They believe that there is a risk that supermarket will run out of stock. The following matrix gives the payoffs of each choice, where in each cell, the first number is the payoff of player A and the second number is the payoff of player B. Player B Wait to buy Run to buy Player A Wait to buy Run to buy a. Explain the strategic interactions behind the stockpiling behavior b. Find the equilibrium by elimination of dominated strategies C. Does individual rationality lead to a socially desirable outcome? Why? 3,3 1,4 4,1 2,2

During the pandemic, stockpiling behavior have been criticized in the newspapers and described as irrational. From a game theory perspective, stockpiling of toilet paper can be modeled as a strategic game. Let's assume that we have two players who can choose between option 1: running to buy toilet paper (stockpiling behavior); and option 2: waiting to buy toilet paper. They believe that there is a risk that supermarket will run out of stock. The following matrix gives the payoffs of each choice, where in each cell, the first number is the payoff of player A and the second number is the payoff of player B. Player B Wait to buy Run to buy Player A Wait to buy Run to buy a. Explain the strategic interactions behind the stockpiling behavior b. Find the equilibrium by elimination of dominated strategies C. Does individual rationality lead to a socially desirable outcome? Why? 3,3 1,4 4,1 2,2

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question 4: During the pandemic, stockpiling behavior have been criticized in the newspapers and described as irrational. From a game theory perspective, stockpiling of toilet paper can be modeled as a strategic game. Let's assume that we have two players who can choose between option 1: running to buy toilet paper (stockpiling behavior); and option 2: waiting to buy toilet paper. They believe that there is a risk that supermarket will run out of stock. The following matrix gives the payoffs of each choice, where in each cell, the first number is the payoff of player A and the second number is the payoff of player B. Player B Wait to buy Run to buy 1,4 2,2 Player A Wait to buy Run to buy a. Explain the strategic interactions behind the stockpiling behavior b. Find the equilibrium by elimination of dominated strategies Does individual rationality lead to a socially desirable outcome? Why? 3,3 4,1 С.
Transcribed Image Text:Question 4: During the pandemic, stockpiling behavior have been criticized in the newspapers and described as irrational. From a game theory perspective, stockpiling of toilet paper can be modeled as a strategic game. Let's assume that we have two players who can choose between option 1: running to buy toilet paper (stockpiling behavior); and option 2: waiting to buy toilet paper. They believe that there is a risk that supermarket will run out of stock. The following matrix gives the payoffs of each choice, where in each cell, the first number is the payoff of player A and the second number is the payoff of player B. Player B Wait to buy Run to buy 1,4 2,2 Player A Wait to buy Run to buy a. Explain the strategic interactions behind the stockpiling behavior b. Find the equilibrium by elimination of dominated strategies Does individual rationality lead to a socially desirable outcome? Why? 3,3 4,1 С.
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