Chapter 65, Problem 2CYU

To determine

Dominant strategies and Nash equilibrium by considering a new version of the game in which R and J should decide whether to go to the nightclub or the movie theater.

Explanation of Solution

There will be no dominant strategy in this case because the action of the other player will determine which option is optimal for each player.

Both the bottom-right and top-left cells can reach equilibrium. Neither player is motivated to alter their tactics in any of those cells.

Due to the lack of a dominant strategy by either party, the payoffs do not conform to the pattern associated with a prisoner's dilemma. R is aware that if he makes the first step and purchases a movie ticket, J will follow suit and R will receive a reward of 2. If R and J purchase a nightclub reservation, R will receive a payout of 3. So both R and J will purchase a reservation for a nightclub. They will both see the movie if J makes the first move.

Economics Concept Introduction

Introduction: An equilibrium where it is assumed that all players are aware of one another's equilibrium strategies and changing one's own strategy will not help anyone, is called Nash equilibrium.