1. Fred and Wilma are getting divorced. They have a $100,000 estate to divide between them. Hiring a lawyer costs $10,000. If they settle (50/50) without the lawyers, each gets $50,000 (the lower right cell).
   

   Fred (on left side of graph)

   
   
   

   Wilma (on top side of graph)

   
   
   

	Lawyer	No Lawyer
Lawyer	40,000                      40,000	60,000                           30,000
No Lawyer	30,000                      60,000	50,000                           50,000

If they both hire lawyers, they achieve the same 50/50 split but each must pay the lawyers fee. If only one person hires a lawyer then that person does better than the 50/50 split because of better legal advice; that person has to pay their lawyer’s fees. The matrix above represents the possible settlement outcomes.

1. What is meant by a dominant strategy?
2. Do Fred and Wilma each have a dominate strategy? Explain.
3. What is the outcome (the Nash Equilibrium) of this divorce settlement game? i.e. what do Fred and Wilma choose to do and what do they each gain?

Answer rating: 100% (QA)

A dominant strategy in game theory refers to a course of action that provides the best outcome for a ... View the full answer