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Theory
Understanding strategic
behaviour
This is because the solution to this game is suboptimal from the point of view of the players. This
means that there is a solution that makes both
players better off, but the rationality of the agents
does not lead to it.
Payoff Matrix
1 criminal
Confess
Deny
Confess
20
20
25
0.5
Deny
0.5
25
1
1
2nd criminal
solution)
Collude and share monopoly profits (cartel).
2 players :
2
2 strategies :
Produce
c = 10
For the duopoly competition case :
Payoff
Matrix
Qd
Qc
Qd
2
2
0
15
Qc
15
0
10
10
Firm A
Central properties:
The Nash equilibrium is generally stable
Every game has at least one Nash equilibrium:
Either in pure strategies : Players only play a single
strategy in equilibrium
Or in mixed strategies : Players play a combination of
several strategies with a fixed probability
The proof of this result is the main contribution of John
Nash (and the reason why it is called a Nash equilibrium)
Firm B
Payoff
Matrix
Qd
Qc
Qd
2
2
0
15
Qc
15
0
10
10
Firm A
Firm B
Payoff
Matrix
Qd
Qc
Qd
2
2
0
15
Qc
15
0
10
10
Firm A
Payoff
Matrix
Goalkeeper
L
1
0
0
1
0
1
1
0
Striker
Payoff
Matrix
Goalkeeper
L
1
0
0
1
0
1
1
0
Striker
Retaliation
Even
Retaliation
Retaliation
Retaliation