Question

Your instructor challenges you to solve this classic economics thought experiment called the stag hunt: Suppose you and a hunting partner are hunting for food to feed your families in a post-apocalyptic world with no stores, farms, or trade. You lay a trap for a deer that will provide a large number of calories for your two families to continue to survive. While waiting, you both spot a hare running through the trap. If you chase after the hare, you’ll catch it but you will scare any wildlife in the area and you won’t catch the deer you were waiting for. The hare only provides a small amount of calories for your own family and none for your partner’s family. Use the payoff matrix:
Your friend hunts the deer Your friend hunts the hare
You hunt the deer Your payoff is 5 Your payoff is A
Your friend's payoff is 5 Your payoff is 2
You hunt the hare Your friend's payoff is 2 Your payoff is 1
Your friend's payoff is A Your friend's payoff is 1
a. What is the most likely value for A in this scenario?
a. 6.
b. 2.
c. 5.
d. 3.
e. 0.
b. In order for the payoff-dominant equilibrium to be stable, both partie:____.
a. must trust each other to not defect to chasing the deer.
b. must follow a Grim Trigger strategy.
c. must trust each other not to defect to chasing the hare.
d. must participate in collusion.

Answer 1

Answer:

a. The most likely value for A is 0.

b. In order for the payoff-dominant equilibrium to be stable, both parties,C, must trust each other not to defect to chasing the hare

Explanation:

a. A is 0 because if one party defects and chases the hare while the other party cooperates, the other party is left with no food to feed their family.

b. Using the check mark method reveals two Nash equilibria. One is a payoff‑dominant equilibrium, when both parties hunt the deer, and the other is a risk‑dominant equilibrium, when both parties hunt the hare. In order for the payoff‑dominant equilibrium to be stable, both parties must trust each other not to defect to chasing the hare.