Two Players Are Engaged in a Game of Chicken

question 25

Multiple Choice

Two players are engaged in a game of Chicken. There are two possible strategies, Swerve and Drive Straight. A player who chooses to Swerve is called Chicken and gets a payoff of zero, regardless of what the other player does. A player who chooses to Drive Straight gets a payoff of 36 if the other player swerves and a payoff of -36 if the other player also chooses to Drive Straight. This game has two pure strategy equilibria and

• A) a mixed strategy equilibrium in which each player swerves with probability .50 and drives straight with probability .50.
• B) a mixed strategy equilibrium in which one player swerves with probability .50 and the other swerves with probability .50.
• C) a mixed strategy in which each player swerves with probability .25 and drives straight with probability .75.
• D) two mixed strategies in which players alternate between swerving and driving straight.
• E) no mixed strategies.

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Definitions:

Rates of Return

A measure of the profit or loss of an investment over a specified period, usually expressed as a percentage of the initial investment.

Equity Returns

The profit or loss generated on an investment in equity, represented as a percentage of the investment's initial cost.

Interest

The charge for borrowing money, typically expressed as an annual percentage rate.

Debt Investments

Financial instruments that represent a loan made by an investor to a borrower, typically used by corporations, municipalities, and sovereign governments to finance projects and operations.