(Scenario: Payoff Matrix) The payoff matrix shows outcomes of various strategies that a home and foreign country can follow to decide to regulate or not regulate pollution. The columns give Foreign's actions, and the rows give Home's actions. The values in the upper right-hand corner of each element give Foreign's net benefits; the values in the lower left-hand corner of each element give Home's net benefits. Net benefits are the environmental benefits from regulation minus the costs associated with installing pollution control equipment. Which of the following elements represents a Nash equilibrium?

Question

(Scenario: Payoff Matrix) The payoff matrix shows outcomes of various strategies that a home and foreign country can follow to decide to regulate or not regulate pollution. The columns give Foreign's actions, and the rows give Home's actions. The values in the upper right-hand corner of each element give Foreign's net benefits; the values in the lower left-hand corner of each element give Home's net benefits. Net benefits are the environmental benefits from regulation minus the costs associated with installing pollution control equipment.  Which of the following elements represents a Nash equilibrium?

Quizplus · Accepted Answer

D represents a Nash equilibrium because both Home and Foreign have chosen their best strategy given the other's strategy. Home's best strategy is to not regulate, which gives them a net benefit of 4. Similarly, Foreign's best strategy is to not regulate, which gives them a net benefit of 3. Neither player has an incentive to change their strategy given the other's strategy.

(Scenario: Payoff Matrix) the Payoff Matrix Shows Outcomes of Various