Task

Work on this problem set in your groups and produce a consensus answer document (i.e., common document). Answer each question concisely but with detail, including calculations. Come to the point and be precise. Do not restate definitions.

Use only the information given in a question to answer that questionassume ceteris paribus unless otherwise specified

Answer all questions correctly.

1. Recently, your financial advisor Biff convinced you to move all of your funds from your (federally insured) bank accounts to a promising (uninsured) investment fund. It sounded like a good idea at the time but a flurry of recent texts from friends suggests otherwise. The fund may or may not be in trouble but not one of you knows and no one can find any useful information. All of you are deciding whether or not to keep your money in the fund or withdraw it.

Think of this as a game where you and everyone else with money in this fund are the players. (Note:it is common in some games with multiple players to simplify by having Player 1 is an individual and 'everyone else' as Player 2). Suppose you and everyone else have only two strategies: Keep your money in the fund OR withdraw all of your money.

Assume that if you and everyone else withdraw your money, the fund goes out of business (bad). If none of you withdraw any money, the fund survives (good).

Set up this game such that it is a Prisoners' Dilemma. You decide what the payoffs are (e.g., levels of utility).Include a payoff matrix of your game and a brief narrative describing the outcome.

2. Consider the following non-cooperative, 2-player game. The payoffs for each player are ordinal levels of utilitylarger numbers are preferred to smaller numbers. Player 1's payoffs are listed first in each box.

Find any and all Nash equilibria and describe how you found it/them. Does either player have a dominant strategy?If so, what is it for each player?Briefly explain.

Is there a Pareto improving outcome? Briefly explain. Keep your entire answer under 1 page.