Why Can't Two Firms in a Prisoners' Dilemma Enforce a Better

question 112

Multiple Choice

Why can't two firms in a Prisoners' Dilemma enforce a better outcome that has higher payoffs?

• A) Under an outcome with higher payoffs, the outcome is not a Nash equilibrium and each firm has an incentive to change their actions.
• B) Barriers to entry
• C) Barriers to exit
• D) The Nash equilibrium in a Prisoners' Dilemma has the highest possible payoffs for both firms.

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Definitions:

Cognitive Dissonance

A psychological discomfort experienced when an individual holds two or more contradictory beliefs, ideas, or values at the same time.

Escalation

The process of something becoming or being made more intense, severe, or serious.

Optimism

A mental attitude reflecting a belief or hope that the outcome of some specific endeavor, or outcomes in general, will be positive, favorable, and desirable.

Z Problem-solving Model

An approach to problem-solving that promotes collaboration among all stakeholders to find a solution that addresses the needs of all parties.