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Answer to Question #58681 in Microeconomics for Daniel Annang

Question #58681
Two players are engaged in a game of Chicken. There are two possible strategies, Swerve and Drive Straight. A player who chooses to Swerve gets a payoff of zero, regardless of what the other player does. A player who chooses to Drive Straight gets a payoff of 432 if the other player swerves and a payoff of –48 if the other player also chooses to Drive Straight. a. Represent the payoffs in the normal form. b. What is the pure strategy Nash equilibrium/equilibria? c. What is the probability of a player swerving or driving straight in the mixed strategy equilibrium d. From (c) what will be the expected payoff for the Nash equilibria?
Expert's answer
a. Represent the payoffs in the normal form.
Player 1\Player 2 | Swerve | Drive Straight
Swerve | 0 | 0
Drive Straight | 432 | -48
b. The pure strategy Nash equilibrium is when both players choose some particular strategies, that are better for them, if there is no collusion between them.
c. The probability of a player swerving is lower than the probability of driving straight in the mixed strategy equilibrium.
d. From (c) the expected payoff for the Nash equilibria is that both players choose to drive straight.

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