1. a) Suppose two world leaders \"Nikita\" and \"Margaret\" are engaged in an ar

Question

1. a) Suppose two world leaders "Nikita" and "Margaret" are engaged in an arms race and face the decision whether or not to build a missile. The payoffs of Nikita and Margaret are as follows:
If both build a missile, both receive the payoff -10.
If both do not build a missile, both receive the payoff 0.
If one builds a missile but th eother does not, then the one who does build a missile receives the payoff 8 but the one without a missile receives the payoff -20.

a) Express this game in the normal form.
b) Does either player have a dominant strategy? Explain why or why not? Is there a dominant solution for this game?
c) Identify the Nash equilibrium of this game. Explain.
d) Which set of actions maximizes the total payoff of Nikita and Margaret? Is it likely that they will choose the payoff-maximizing actions without some communication? Why or why not?

Explanation / Answer

To find the Nash equilibria, we examine each action profile in turn.

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