One problem associated with a situation that has good and bad equilibria is that:
A)someone always benefits from the bad equilibrium.
B)it can be difficult to prevent the bad equilibrium from occurring.
C)the good equilibrium benefits everyone.
D)it is unlikely that the situation will end in an equilibrium.

Question

Quizplus · Accepted Answer

In a situation with both good and bad equilibria, it can be difficult to prevent the bad equilibrium from occurring because individuals have incentives to deviate from the good equilibrium towards the bad one. This is known as a coordination problem, where individuals need to coordinate their actions to achieve the superior outcome. Failure to coordinate can result in the inferior outcome. Therefore, the existence of a bad equilibrium can be a source of frustration and difficulty in achieving the desired outcome.

One Problem Associated with a Situation That Has Good and Bad