Economists believe terrorists behave rationally: If country A (America) increases security efforts while country B (Britain) remains complacent, terrorists will focus their attacks on targets in the relatively less well-protected country B. Suppose the following payoff table shows the net benefits for the United States and Great Britain according to their decisions either to maintain their annual spending levels at the optimal levels (when both countries spend proportionately equal amounts) or to increase annual spending by 10 percent. The payoffs in the table measure net benefits (in dollars) from antiterrorism activities, that is, the value of property not destroyed and lives not lost due to reduced terrorist minus spending on antiterrorism.

a. Antiterrorism policy analysts believe allies in the war against terror face a prisoners’ dilemma concerning how much each country chooses to spend on activities that reduce the incidence of terrorist attacks on their own nation’s people and property.

In the payoff table, make up your own values for payoffs in cells B and C that will create a prisoners’ dilemma situation. 

b. “When all nations spend more and more preventing terrorist acts, they may actually all end up worse off for their efforts.” Evaluate this statement using the payoff table you created in part a.

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Britain's antiterrorism spending $100 (per capita) $110 (per capita) America's$100 (per capita)$ antiterrorism 1,000, $1,000 spending 110 (per capita) $800, $800 Payoffs In millions of dolars of net benefit annually.