Answer to Question #44104 in Economics for Najla

Question

Consider the following payoff matrix:
Player B Strategy
1
2
$1,000
-$2,000
1
$2,000
-$1,000
Player A Strategy
-$1,000
$2,000
2
-$2,000
$1,000
a. Does Player A have a dominant strategy? Explain why or why not.
[3 marks]
b. Does Player B have a dominant strategy? Explain why or why not.

Answer 1

a. Player A has a dominant strategy, he will preffer the strategy 1 to minimize possible losses and maximize possible gains. This strategy is more preferable for him, because the possible gains are higher ($2000>$1000) and possible losses are lower (-$1000>-$2000) than according to the atrategy 2. In our case both Player A and Player B will chose strategy 1, so Player A will get $2000 and Player B will get $1000.b. Player B has a dominant strategy too, he will preffer the strategy 1 to minimize possible losses. He may think, that the player A will choose the strategy 2, so it is more preferable for him to choose lower possible losses and lower possible gains. That's why, in our case both Player A and Player B will chose strategy 1, so Player A will get $2000 and Player B will get $1000.