Investment in safety at the firm level poses a prisoners' dilemma because
A) if each firm plays its dominant strategy, joint profits are maximized.
B) if each firm plays its dominant strategy, joint profits are not maximized.
C) neither firm has a dominant strategy.
D) the Nash equilibrium is not achieved.

Question

Quizplus · Accepted Answer

In a prisoners' dilemma, each firm has an incentive to invest less in safety, assuming the other firm will also invest less, to maximize their own profits. However, if both firms do this, they end up with lower overall profits than if they had both invested more in safety. This is why joint profits are not maximized if each firm plays its dominant strategy of investing less in safety.

Investment in Safety at the Firm Level Poses a Prisoners