1. Consider the following game between you and your opponent. Your payoffs are l

Question

1. Consider the following game between you and your opponent. Your payoffs are listed first, and your opponent’s payoffs second. At each decision node, you can either take the payoff (T), or leave it (L). The total pot will grow, and your opponent will have an option to take it (T) or leave it (L), and then you will have a turn.

a. What is the best strategy in this game?

b. In studies done on people in this game (where there is potentially 100 rounds and higher payoffs), the best strategy is rarely played. Discuss why players may act irrationally in this game.

Explanation / Answer

1. a. Best strategy in this game is to take the payoff. If I take the game, I would get a positive payoff everytime. However, I leave, oponent has two option. If he/she takes, my outcome would be zero and if oponent chooses to leave, then only I can get a chance to achieve higher payoff. Therefore, taking payoff is the best strategy for both players.

2. If both players leave simultaneously, payoffs can be maximised. However, oponent can betray for availing higher profits by taking the payoff (T). Short term profit maximisation attitude may lead to players to act irrationally in the absance of trust, although they know that higher payoffs can be available by playing 100th round.

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