Describe a real-life example of prisoners dilemma.

(b) How, if at all, is the prisoners dilemma you described gets resolved? If it is not resolved

at all, how do you think it might be resolved?

(c) In what sense is the Nash equilibrium of the prisoners dilemma unsatisfactory? [25%]

In the situations listed below, identify the players and explain why and how their actions are interdependent?

Two companies with large market shares in a particular industry making pricing decisions.

A mother asking her two kids to divide a cake among themselves fairly.

A company needs to decide whether to offer either stock options, a lump-sum bonus, or profit sharing to the CEO upon meeting of or exceeding the annual financial targets. [25%]

Identify the Nash equilibrium or equilibria, if any, in the following game. Briefly explain your answer. [20%]

Player II

A

B

C

D

E

Player 1

1

7, 16

35, 72

13, 10

38, 33

29, 94

2

27, 19

16, 91

24, 12

87, 37

65, 45

3

38, 93

27, 49

26, 48

43, 98

92, 15

4

39, 59

26, 19

73, 56

66, 20

62, 48

5

50, 23

31, 26

98, 21

62, 19

57, 31

Construct a normal form game with two Nash equilibria using the matrix below (identify the Nash equilibria). [15%]

Player II

A

B

C

D

E

Player 1

1

2

3

4

5

Construct a normal form game with no Nash equilibrium using the matrix below (show your work). [15%]

A

B

C

D

Player 1

1

2

3

4

5