They have agre to payo as follow y eed offs ws if wh

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Unformatted text preview: to see the Londo Philharm ut ws meo to e on monic Orch hestra (mus denoted as M). sic, d Of co ourse, Rom and Juliet are quite taken with each othe and would prefer to meo e er o be to ogether than to be sep parate, how wever, each of them wo ould derive more pleas sure by being together at the eve that they prefer. ent y For e example, Romeo want to be with Juliet liste R ts h ening to mu usic (his big ggest payo and Juliet wants to be with Ro off) o omeo watch hing the soc ccer match (her bigge payoff). est meo multaneous choose ( sly (without hav ving agreed upon d Rom and Juliet must sim wher to meet) which venu to arrive at. re ue e s form and th normal fo he orm... Let's represent this game in both the extensive f If Ro omeo choos M then Juliet's bes response is M. Sinc M is also Romeo's ses st e ce o best response when Juliet chooses M we have a mutual be respons Thus, w est se. M) e Nash Equilib brium. (M, M is a pure strategy N If Ro omeo choos S then J ses Juliet's bes response is S and by inspection we can st see t this is also Romeo's b best respons to Juliet picking S. Thus, (S, S) is also a se pure strategy Nash Equilib brium. Grea Now the have no problem, right? at! ey WRONG! W ne wo decides to g to the go The Nash equilibria only happen if on of the tw players d nt even that they don't want to go to. pose that Romeo decid that he simply can R des e nnot miss th orchestr and he ra Supp belie eves that Ju uliet will sett for musi just so th they can be togethe tle ic hat n er... 304 At the same time, suppose that Juliet figures that Romeo is a sensitive fellow and because he knows how much she wants to see the soccer match so she goes to the sports venue expecting that he will meet her there... If this scenario played itself out we would have the outcome (M, S) and the payoffs would be (5, 5). Both of the players are where they want to be...but without each other's company. "SELFISH OUTCOME" Interestingly, the "selfish outcome" described above is not the worst ou...
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This note was uploaded on 05/25/2010 for the course ECON 301 taught by Professor Sning during the Spring '10 term at University of Warsaw.

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