Consider the following game between two players. Each player i has an initial endowment of 5 cans
Question:
Consider the following game between two players. Each player i has an initial endowment of 5 cans of beer. This beer can hidden in their private account (xi) or put in a public account, the fridge (yi). The happiness/payoff (πi) of each player depends on the beer in her private account and the beer in the public account and takes the following form:
(assume only whole cans of beer can be allocated to each account.)
a) What is the happiness function for player i = 1?
b) What are the Nash equilibrium contributions for each player? And what is each player's happiness?
c) Is there a set of contributions that gives each player a higher level of happiness than under the Nash Equilibrium? If not explain why not.
d) What is the socially optimal allocation that maximizes total happiness?
Making Hard Decisions with decision tools
ISBN: 978-0538797573
3rd edition
Authors: Robert Clemen, Terence Reilly