Part 1. Please read the excerpt on game theory:
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Prisoner B
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Confess
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Keep Quiet
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Prisoner A
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Confess
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Both get 4 years
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Prisoner A gets 1 year
Prisoner B gets 5 years
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Keep Quiet
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Prisoner B gets 1 year
Prisoner A gets 5 years
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Both Get 2 years
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a. Given the payoff matrix above, explain from firm A's perspective the expected decision that firm B will make.
b. Given the payoff matrix above, explain from firm B's perspective the expected decision that firm A will make
c. IF these two firms could create an agreement, what would they do?
d. Because collusion is illegal, what would each firm do given the expected decision of the other firm?
Part 2: Refer to the Back or Stravinsky example (16.2) from the reading. Does situation have a Nash Equilibrium? Explain your answer by evaluating the expected decisions of the other person