The chance a firm takes in defecting from a cooperative solution to a game is that
A)the firm will immediately suffer lower profits as a result of defecting.
B)the noncooperative solution causes profits to fall.
C)cooperation will result in lower profits in the future.
D)cooperation will be difficult to reestablish and profits will be sacrificed.
E)all firms know the actions of each other.

Question

Quizplus · Accepted Answer

Defecting from a cooperative solution can result in difficulty reestablishing cooperation, which can ultimately lead to sacrificing profits. This is because once a firm defects, the other firms may also defect, resulting in a noncooperative solution with lower profits for everyone. Therefore, firms must weigh the short-term benefits of defecting against the potential long-term consequences.

The Chance a Firm Takes in Defecting from a Cooperative