16. Smith loves dogs and has a pair of West Highland terriers. Jones has an incredible fear of dogs and cannot stand to be within sight of them. Smith and Jones are deciding whether to live in Arlington or Bexley. If they end up living in the same part of town, Jones will run into Smith out walking the Westies and get frightened. Thus, Jones prefers to be physically separated from Smith. The payoffs for each person are listed in the table below for each of the four possible combinations of actions:

a. If Smith and Jones are payoff maximizers and make their decisions individually, what will they do?

b. If Smith and Jones can make binding agreements with each other, what will they do?

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Smith Arlington Bexley Jones: 0 Jones: 500 Arlington Smith: 800 Smith: 900 Jones Jones: 800 Jones: 0 Bexley Smith: 800 Smith: 900