Consider a population with two types of people, C’s and D’s. Interactions among various combinations of the two types produce the following payoffs:
C- C: 6 each
C- D: 8 for D, 0 for C
D- D: 4 each
Invisible contact lenses are available at a cost of 1 unit that enables the wearer to identify each person’s type with certainty. Without the lenses the two types are indistinguishable.
a. What will be the equilibrium population shares of the two types?
b. How would your answer differ if the payoff for D-D interactions was 5.5?