QUESTION 2: Game theory [25 points]

This is a two-player, simultaneous one-move game represented as a game table (normal form)

a) What is the pure strategy Nash equilibrium outcome if there is one? [5 points]

b) Is this a socially optimal outcome? If not, which outcome is preferred? [5 points]

c) Do all three solution approaches for simultaneous games work independently (not together)? If not, which do not? [5 points]

d) Draw the game as a game tree (extensive form). [5 points]

e) Switch the payoffs in cells (A, A) and (D, D). What is the pure strategy Nash equilibrium outcome if there is one? [5 points]

P1 | P2 B C D A (17,5) (11, 16) (15, 4) (3, 16) B (7, 13) (2, 10) (13,9) (20,5) C (12, 2) (6,9) (20,8) (3,7) D (1, 20) (10, 20) (2, 12) (1, 17)