Managerial Economics & Organizational Architecture 6th Edition by James Brickley , Clifford Smith ,Jerold Zimmerman

Exercise 21

Some foolish teenagers play "chicken" on Friday nights. Two teenagers drive their cars at each other at high speeds. The first to swerve to the side is the "chicken" and loses. If both swerve out of the way, they are both chickens and both lose. Neither of the drivers wants to get into an accident. It causes a significant loss in utility (possibly death). However, both do not want to be known as a chicken. This causes some loss in utility. What is the equilibrium of this game Do you think the two drivers will necessarily produce an equilibrium outcome Do you think the chances are better or worse for achieving an equilibrium outcome if the two players know each other Explain. Do you think it matters whether the two players have played the game before Explain.