Answer to Question #219304 in Microeconomics for Pragati

Question

You and a classmate are assigned a project on which you will receive one combined grade. You each want to receive a good grade, but you also want to avoid hard work. In particular, here is the situation:
*If both of you work hard, you both get an A, which gives each of you 40 units of happiness.
*If only one of you works hard, you both get a B, which gives each of you 30 units of happiness.
*If neither of you works hard, you both get a D, which gives each of you 10 units of happiness.
*Working hard costs 25 units of happiness.
a. Fill in the payoffs in the following decision box:



b. What is the likely outcome? Explain your answer.

d. Another classmate cares more about good grades: He gets 50 units of happiness for a B, and 80 units of happiness for an A. If this classmate were your partner (but your preferences were unchanged), how would your answers to parts (a) and (b) change? Which of the two classmates would you prefer as a partner? Would he also want you as a partner?

Answer 1

The complete question is

You and a classmate are assigned a project on which you will receive one combined grade. You each want to receive a good grade, but you also want to avoid hard work. In particular, here is the situation:

*If both of you work hard, you both get an A, which gives each of you 40 units of happiness.

*If only one of you works hard, you both get a B, which gives each of you 30 units of happiness.

*If neither of you works hard, you both get a D, which gives each of you 10 units of happiness.

*Working hard costs 25 units of happiness.

a. Fill in the payoffs in the following decision box:

Your Decision Classmate's Decision

Work/Work Your: Classmate:

Shirk/Work Your: Classmate:

Work/Shirk Your: Classmate:

Shirk/Shirk Your: Classmate:

b. What is the likely outcome? Explain your answer.

Solution

a.

Consider the game below

Suppose there are two decisions Your decision and classmates decision. Both have two strategies- work and shirk.

b.

If classmates decision is to work, your decision will be to shirk because it is giving him the highest payoffs. if classmate's decision is to shirk, your decision will be to shirk because it is giving him the highest payoffs.

If your decision is to work, classmate's decision will be o shirk because it is giving him the highest payoffs. If your decision is to shirk, classmate's decision will be to shirk because it is giving him the highest payoffs.

Thus, likely outcome or nash equilibrium is (shirk, shirk)