An example of a strategic Both newspapers can choose to cut situation in economics price or don't cut. If both newspapers choose don't cut Apple Daily and Oriental Daily are then each will earn 20 million dollars considering whether to have a price If one chooses don't cut and the war. other chooses cut price,then the newspaper choosing don't cut will Vs only earn 5 million,while the one choosing cut price can earn 30 報果 million dollars. If both newspapers choose cut price, Prisoner's Dilemma then each can earn 10 million dollars. ·John and Peter have been arrested for possession of guns.The police suspects that they Oriental Daily are going to commit a major crime. Cut Don't If no one confesses,they will both be jailed for 2 price cut years. Cut If only one confesses. 10,10 price 30,5 he'll go free and his Apple partner will be jailed for Daily Don't 10 years. 5,30 20.20 cut If they both confess,they both get 5 years. Matrix Representation Common features of the two of Prisoner's Dilemma examples Both have two players,say A and B. Peter Each player has two strategies,say C Don't and D. Confess confess There are four possible outcomes of the moves (C,C),(C,D)(D,C),(D,D). Confess 5,5 0,10 John Payoffs of each possible outcome are Don't 10.0 2,2 known to each player. confess ×4 An example of a strategic situation in economics „ Apple Daily and Oriental Daily are considering whether to have a price war. Vs „ Both newspapers can choose to cut price or don’t cut. „ If both newspapers choose don’t cut then each will earn 20 million dollars. „ If one chooses don’t cut and the other chooses cut price, then the newspaper choosing don’t cut will only earn 5 million, while the one choosing cut price can earn 30 million dollars. „ If both newspapers choose cut price, then each can earn 10 million dollars. 5,30 20,20 Don’t cut 10,10 30,5 Cut Apple price Daily Don’t cut Cut price Oriental Daily Prisoner’s Dilemma „ John and Peter have been arrested for possession of guns. The police suspects that they are going to commit a major crime. „ If no one confesses, they will both be jailed for 2 years. „ If only one confesses, he’ll go free and his partner will be jailed for 10 years. „ If they both confess, they both get 5 years . Matrix Representation of Prisoner’s Dilemma 10,0 2,2 Don’t confess Confess 5,5 0,10 John Don’t confess Confess Peter Common features of the two examples „ Both have two players, say A and B. „ Each player has two strategies, say C and D. „ There are four possible outcomes of the moves : (C,C),(C,D)(D,C),(D,D). „ Payoffs of each possible outcome are known to each player