Bonnie and Clyde are players in a classical prisoner's dilemma. Captured by police, they are separated and
Question:
a. What is the Nash equilibrium in this prisoner's dilemma game? Is the outcome a great one for either player?
b. Suppose that, in the squad car on the way to the station, Bonnie tells Clyde, "If you rat me out, I'll have my peeps break your kneecaps." Assuming that Clyde is indifferent between spending 7 years in prison and having his kneecaps broken, redraw the payoffs in the game to reflect Bonnie's strategic move.
c. How does Bonnie's strategic threat alter the outcome of the game? Explain.
d. Suppose Clyde knows that Bonnie is a sadist, who would willingly pay a year in jail for the pleasure of breaking his kneecaps no matter what Clyde does. Will Bonnie's threat alter the outcome of the game? Explain.
Step by Step Answer:
Microeconomics
ISBN: 9781464146978
1st Edition
Authors: Austan Goolsbee, Steven Levitt, Chad Syverson