Exercise #5(game theory and choice question)

We are presented with land use choices.Individuals are free to choose their own development strategy based decision to burn leaves or bag the leaves.

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a) Does either party (jones or smith) have a dominant strategy?(5 Points)A dominant strategy is what you are going to do, knowing what they are going to dothis leads to the Nash EquilibriumExplain how and what the dominant strategy is (hint, there does not need to be two dominant strategies).

b) Is there a Nash equilibrium? Explain.(5 Points)

d)What is the socially optimal solution?(5 Points)

e)How can we arrive at the optimal solution (consider the Coase Solution).Explain the necessary payoff.(5 Points)

Leaves:Burn or Bag

How can we encourage leaves to be removed in an efficient fashion

We are presented with choices.Each individual is free to choose their own strategy based on their utilities

Payoff Matrix

Smith

Burn the LeavesBag the Leaves

Burn the Leaves J:4J:8

S:4S:2

Jones

Bag the LeavesJ:2J:7

S:8S:7