1. Suppose that the editors of Time and Newsweek are trying to decide upon their
ID: 1173580 • Letter: 1
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1. Suppose that the editors of Time and Newsweek are trying to decide upon their cover story for the week. There were two major news developments: The leaking of a clandestine CIA officer's identify and a terrorist suicide bombing.lt is important that the news weeklies not choose the same cover story since some readers will by only one magazine when they might otherwise buy both. The choice of cover story depends on newsstand sales. The editors believe that 20 percent of newsstand buyers are interested in the CIA story, while 80 percent are interested in the terrorist bombing. If both news weeklies run the same cover story, they will evenly share the market, but if they run different cover stories, each will get that share of the market. This static game is depicted in the following figure. Payoff Matrix: (row, column)-(Time, Newsweek) CIA Terrorism (10,10) 20,80 CIA Terrorism (80, 20) (40,40) a. Does either news weekly have a dominant strategy? b. What is the Nash Equilibrium strategy profile for this game? 2. Determine the pure-strategy Nash Equilibrium for the following static game Payoff Matrix Payoffs: (row, column) (Rose, Gold) Left Center Right Left (5,4) 6,1) (7,3) Center (3.2) Right (4,1) (10,7) (1,9) (8,5) (4,7)Explanation / Answer
1. a) Dominant strategy is a strategy for a player i.e. best response to all strategy profile of other player.
Dominant strategy of Time is to choose Terrorism because it gives Time greater payoff irrespective of decision of other player.
Dominant strategy of Newsweek is to choose Terrorism because it gives greater payoff to Newsweek irrespective of decision of Time.
b) Nash equilibrium is a strategy profile such that for each player given strategy, it is best response. Nash equilibrium is a set of strategies such that each player is doing their best given the strategy of other player.
If Time chooses CIA then best response of Newsweek is to choose Terrorism.
If Newsweek chooses Terrorism then best response of Time is to choose Terrorism.
Therefore, (CIA, Terrorism) is not the nash equilibrium.
If Time chooses Terrorism then best response of Newsweek is to choose Terrorism.
If Newsweek chooses Terrorism then best response of Time is to choose Terrorism.
Therefore, (Terrorism, Terrorism) is the nash equilibrium.
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